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Plan Well, Retire Well

Saving and investing your money

A Stick or a Carrot -- Which Works Best to Reach Goals?

Did you set any goals for the New Year? I find setting goals to be relatively easy -- it's reaching the goals that is difficult. Especially those goals that require repeating behaviors week after week like losing weight or saving money. Based upon the number of articles I've recently read, it seems I'm not the only one that has trouble staying focused on my goals!

Well, leave it to an economist to come up with a new way to motivate you. Dean Karlan, Economics Professor at Yale University, decided to apply behavioral economics research and help people reach their goals. With others, he formed a company, -- a place where you can "put a contract on yourself."

According to the website, "We all need help to reach our goals - whether it's incentives, or support from others. Years of economic and behavioral research show that people who put stakes - either their money or their reputation - on the table are far more likely to actually achieve a goal they set for themselves."

Basically the idea is that you use a stick to motivate yourself to meet your goal. For example, at the website, I could set a financial goal to save 10% of my income in a retirement savings plan each paycheck. If I fail to meet my goal, a stick (of my choosing) would be applied: a donation to a charity would be made at my expense or, even worse, a donation to an anti-charity! An anti-charity is defined as "any organization whose views you strongly oppose, or one which promotes values that are most contrary to your own." The possibility of donating to an anti-charity would motivate me!

Previously I've used the carrot approach to my New Year's Resolutions -- visualizing myself slim in the summer or enjoying a vacation using money saved. But this year, I think I'll try the stick approach and see how that works for me. Of course, you don't have to use a website like or one of the many other similar websites that are springing up. Publically declaring your intentions (to a friend or family member) may work as well for you. The embarrassment of not reaching your goals is a stick too.

Here's one other tip for reaching your goals. Be sure you set SMART goals. SMART goals are goals which are:

S -- specific (for example, how much money saved?)

M -- measurable (a way to tell if you are succeeding)

A -- agreed upon (by family members or others affected by the goal)

R -- reasonable (reach high but don't set a goal that you can't achieve)

T -- timed (set a date to achieve your goal or steps to your goal)

The calculators at the Plan Well, Retire Well website may help you set your SMART financial goals.

And, let me know -- does a stick or a carrot help you achieve your financial goals? Click on my name below to send me a note.

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