If your pay check is set to increase this January, you can decide today to use your pay rise to save more for the future. Leveraging increases in wages can be easier than revisiting your current budget.
Most retirement recommendations involve saving more today, but everyone knows how difficult this is. A tight budget, extravagant spending habits or unexpected bills can make saving more for the future tough. Sometimes, saving more than just a few percent of your income is simply not possible. According to Aegon's Retirement Readiness Survey 2019, only 25% of people say they are on track to saving enough for retirement.
A potential solution to this problem is deciding to set money aside at your next pay rise. If your pay check is set to increase in January due to changes in legislation, taxes, one-off bonuses or performance-linked increases, you can decide today to save more. A 5% pay raise for example, could mean you can save 3% extra.
This approach, which was developed by Nobel Laureate Richard Thaler of the University of Chicago and behavioural economist Shlomo Benartzi, turns out to be wildly successful. In a trial, people went from saving 3% of their pay check for retirement to almost 14% three and a half years down the line. You can find out more about this method of saving for the future via Shlomo's TED talk.