Forget the $2 million goal and save $200 a month
A writer on money and behavior says a monthly habit makes a far-off goal more likely, and leaves room to enjoy money now.
BiggerPockets · Morgan Housel: The Investing Expert’s “System” for Stress-Free WealthMorgan Housel, a writer on money and behavior, does not organize his financial life around a long-term dollar target. His method is to max out the accounts he can, paycheck after paycheck, and only occasionally check what that habit might add up to in 30 years.
The reason, he says, is that a classic long term goal does not motivate. If you are 30 and tell yourself you want $2 million by age 65, that is 35 years away. When you are worried about next week's grocery bill, age 65 feels abstract enough to ignore.
His fix is to turn the goal into a system. Instead of fixating on $2 million, tell yourself, I will save $200 per month. That is not really a goal, it is something you do with the next paycheck. It is close, concrete, and easy to picture.
Housel uses the same approach with his own money. He saves as much as he reasonably can right now, and once in a while, out of curiosity, he runs the math backward. If I keep doing this until I am 70, what might I have, he asks. The answer is interesting, but it is secondary. The system comes first.
He treats health the same way. He says he has no fitness goals and is not trying to lose 10 pounds. He simply runs every other day because it is part of the schedule. When he runs, he is not thinking that he is one step closer to some finish line. It is just what he does.
The irony, he says, is that sticking to the routine makes a far-off goal more likely, not less. It also leaves room to enjoy money in smaller ways along the way, rather than waiting until you are 65.
For readers who want to try it, a starting point is to pick a monthly amount you can sustain and tie it to the next paycheck, then repeat it and check the 30-year projection only for fun.
Questions people ask
How do I pick the right monthly amount?
Start with what you can repeat without stress, then raise it when income rises. Many advisers suggest saving 15 to 20 percent of take-home pay, including any employer match, but consistency matters more than hitting that number on day one.
Where should that automatic savings go?
Housel says only that he maxes out the accounts he can. As general context, not his advice, for most U.S. workers the first stops are often a 401(k) up to the employer match, then an IRA or Roth IRA, then a taxable brokerage account.
Do I never need a long-term target?
A rough target still helps you check that your system is pointed in the right direction. Run a compound-growth estimate once or twice a year, then put it away and return to the monthly habit.