How to Motivate Yourself to Stick to a Short-Term Financial Goal
Written by Preet Banerjee
Monday, April 15th, 2019
The "no pain, no gain" mentality helps explain why we feel a heightened sense of accomplishment when we achieve something we struggled for. But a slightly different approach might be worth trying, too. It's called a "commitment contract," and the difference is you'll feel pain only if you fail to reach a goal you set.
Hit Your Goal... Or Else!
In 2002, two economics students at MIT wanted to lose weight and so they challenged each other in a financial bet. One student, Dean Karlan, pledged that he would pay his friend $10,000 if didn't lose 38 pounds by a given date. His friend, John Romalis, reciprocated with his own goal. They both successfully hit their weight loss goals. Why? Because losing money is painful, and losing that amount of money is even more painful. With that much money on the line, and remember they were students at the time, there was a very big incentive to hit their goals: they would keep from going broke.
Of course, this was an extreme bet. But you can apply the principle of this commitment contract without having to put a small fortune on the line.
How A Commitment Contract Might Work For You
Pick a Goal
For example, maybe you don't have an emergency fund. Your goal might be to save three months' worth of expenses in a high-interest savings account in your Tax-Free Savings Account.
Choose a Target Date to Hit Your Goal
You may want to pick a time-frame of one year or less. But if it's a big goal, you can create a milestone goal. Let's say you need $10,000 in your emergency fund to sleep better at night. If you can commit $500 per month towards building that fund, it's going to take 20 months. Your one-year milestone could be to have contributed $6,000 by then.
Pick a friend to be accountable to, perhaps someone who wants to set up their own commitment contract for their own goal. Either on paper or by email, exchange your commitment contracts with each other and make a calendar appointment to review your progress at the milestone or target date. The contract will contain a few more things: a financial penalty if you fail, and the naming of a recipient who stands to get that penalty amount.
Choose a Financial Penalty if You Fail
You don't need to commit to something that will completely derail you financially. You just need something that will sting enough to motivate you to avoid that pain. Perhaps you're willing to put $100 at risk?
Pick a Recipient You Don't Want to Give Money To
This is a great way to bolster your chances of success. When you pick a recipient that you would pay the penalty to if you don't hit your goal, make it someone or something you would hate to give it to. So even though you'd financially survive forking over your chosen penalty amount, from a pride perspective, who you give it to will hurt way more.
For example, maybe you support a certain political party. You may want to choose to give your penalty as a donation to that party's biggest rival.
A Fun Way to Save
If the thought of doing that just made your nose crinkle, you can see how powerful a motivator it would be to hit your goal to keep that from happening. If it works, then maybe the risk of pain was the perfect motivation to get you to reach your goal!