Five ways to outsmart your brain for a better retirement

Can using your brain differently improve your retirement?

Is your brain holding you back from being in a better financial state in retirement?

Do you need to make some brave decisions regarding personal economic advancement, but something is undermining your confidence?

Well, it appears there is a whole field of study about that – called behavioural finance.

Behavioural finance argues that when making financial decisions such as investing, people are not nearly as rational as they should, or could, be. They are often driven by hunches, emotions and ‘moving with the herd’ rather than thinking things through.

A Monash University BehaviourWorks department report claims that the more control you have over your finances, the less anxious you will feel over the long term.

The science behind behavioural finance is dense and extensive and too long to go into here.

However if you feel your emotional response to investing could improve, here are some tips to get started.

Make a plan

Monash recommends creating action plans, including details about when, where and how to act.

The study found that asking people to specify a time frame to pay their credit card balances significantly increased their chances of acting on their intentions.

“If you need a little extra push to focus and act on your long-term objectives, you can use automated tools, such as recurring debt payments and regular savings transfers,” the report recommends.

Rethink your language

According to a study in the Journal of Consumer Research, using the words ‘I don’t’ instead of ‘I can’t’ equips people with significantly more direction over their actions.

‘I don’t’ gives the speaker more control whereas ‘I can’t’ denotes a sense of denial. It’s called empowered refusal and you can use it to improve your financial position.

Consider these two scenarios: I can’t buy a fancy new car versus I don’t spend money I’m going to need in retirement.

Blandly stating you can’t buy a new car is negative and defeating, but reframing it that you are saving for the future is more positive.

Are you loss averse?

According to NewRetirement, many people are much more stressed by the prospect of losing money than they are by gaining money.

Think about it. A nice big fat bank balance is reassuring, but it’s probably not earning a lot of interest. Would it be better off in another product? Are you brave enough to move it over?

NewRetirement recommends creating and maintaining an investment plan that includes different economic scenarios to help you overcome loss aversion.

Change your motivations

Write down your ultimate goals for investment and then examine their outcomes.

For example: ‘I don’t want to run out of money when I am retired’ versus ‘I want to maximise my wealth’ are the same thing, just framed differently but one is positive and one is negative.

Rethinking your motivations may completely redirect your investment strategy.

Or you can just focus on your more motivating goals.

One step at a time

Your goal is a comfortable retirement, but the increasing complexity of investment and financial planning can be overwhelming.

Why not just complete one ‘doable’ task a month?

If you are still working you can increase your superannuation contributions, or maybe shop around for a higher interest rate or investigate an annuity. These are all major tasks, and to take them on all at once could be a heavy, confusing load to carry.

Instead, just do one at a time, and don’t start a new strategy until the previous one is complete.

Do you have to force yourself to complete financial tasks? Why not share your tips in the comment section below?

Also read: The pros and cons of superannuation insurance

Written by Jan Fisher

Accomplished journalist, feature writer and sub-editor with impressive knowledge of the retirement landscape, including retirement income, issues that affect Australians planning and living in retirement, and answering YLC members' Age Pension and Centrelink questions. She has also developed a passion for travel and lifestyle writing and is fast becoming a supermarket savings 'guru'.

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