Picture: ISTOCK
Picture: ISTOCK

A new study on savings behaviour highlights the critical importance and value of having a retirement plan driven by specific goals over a long period.

Research from the behavioural science team at US-based fund ratings house Morningstar makes the startling finding that people who look into the future, visualise the lifestyle they would like to lead in retirement and set specific goals, save on average 20 times more money than those with time horizons of less than a year.

"Even looking ahead by just a few years increased savings fourfold," Morningstar says.

What the study shows is that your perspective on time is much more powerful than your income, age, education or gender when it comes to saving.

"Our analyses showed that time horizon had a significantly greater impact on economic behaviours than income," Morningstar says.

"Yes, a person must have an income that is adequate to their needs if they are going to be able to save. Our study suggests, however, that regardless of pay cheque size, having a future-oriented mindset can make the difference between allowing expenses to crowd out one's income or finding ways to save money."

I came across the research as a member of Vulintaba, a group of South African independent lifestyle financial planners who meet from time to time to assess how we can improve the work we do with our clients and how best to help them to achieve their goals.

We have been discussing how difficult it is to help people who continue to live from month to month and year to year. Financial planning review meetings become frustrating to both parties due to the lack of progress.

We had recently heard a presentation by Moira Somers, the Canadian behaviour-change specialist and author of the bestseller Advice that Sticks: How to give financial advice that people will follow, at the recent Financial Planning Institute of Southern Africa conference.

She made the point that as advisers we need to make our advice meaningful for you.

The problem is that financial planning is, well, quite dry.

It's all very well for us to suggest solutions such as "spend less than you earn", "invest your money wisely", "use available tax incentives to help you". Now off you go! Uninspiring, right? So what must we financial planners do to encourage you to look further into your future?

Morningstar emphasises that specific goals are critical. Goals that would have a chance to succeed would be "I want to live in that specific retirement village by this age" or "I want to have RXX-million in my retirement fund when I retire at 65."

If you are one of those people who are battling to save from one month to the next, the best advice we can give you is to take smaller steps that are achievable. Rather start with goals for three months hence, and gradually push them out further. Then start to put longer-term goals in place.

The beauty of a goal is that it creates a vision in your mind. You have set your own goals and your own rules as to how you get there. Your financial planner's job is to provide support.

Having a vision is critical. Imagine ending up with as much as 20 times more savings by simply imagining your future and making this the driving force for change in your daily behaviour.

Strong-minded, disciplined people can probably do this on their own. Most people, though, should welcome the support of a certified financial planner and the subtle pressure they can bring to bear to ensure that you develop specific long-term goals and stick to them.

• O'Mahony is the founder of Veritas Wealth and a former winner of the Financial Planning Institute of Southern Africa's Financial Planner of the Year.