For the 100 million of you who will get a tax refund this year, the former head of retirement solutions at J.P. Morgan has a great and very simple idea.
Don’t spend all your refund.
And don’t save all your refund.
Instead, says Anne Lester, split the difference. Spend half living, and save the other half in your 401(k), IRA or other retirement vehicle.
And don’t just do this with your refund, she adds. Do it with every raise or extra money that comes in.
“Saving is so hard,” she tells me. “One of the best life hacks is to commit to saving half of any raise or any windfall.”
Lester, who spent nearly 30 years at J.P. Morgan Asset Management, including 15 running the Retirement Solutions team and overseeing the target-date funds, has been thinking more about the behavioral aspects of money since retiring in 2020. We all find it incredibly difficult to save money, she says. (Chapter heading in the book she’s writing about personal finance: “You suck at saving, and it’s not your fault!”)
There are, of course, all the financial pressures of the day to day, from rent to gas to food and the like. But there’s also the so-called “hedonic treadmill”–a well-established psychological phenomenon also known as lifestyle creep. As Lester says, yes, “It’s a thing.”
Today’s successful middle-aged lawyer isn’t that much more thrilled by his expensive Beemer than he was with the first Chevy he got at age 19. We adapt very quickly to every raise and every upgrade in our financial position. We become used to more, and better.
(My friends don’t believe how cheaply I eat, even with today’s soaring food prices—but that’s a story for another day.)
As a result, spending more eventually leaves us no happier than we were before. Hence the “treadmill”:…