To build wealth, 'change your thinking,' says a behavioral economist


Your ability to think long term is highly correlated with your spending and saving behavior. That's the conclusion Sarah Newcomb, behavioral economist at Morningstar and author of the book "Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind," has come to based on years of researching what factors affect savings rates.

"You're not going to change your behavior until you change your thinking," Newcomb says. "The biggest financial mistakes aren't fixed with nudges, they require a change of personality."

While it may come naturally for some people to envision, and build wealth for, their life 30 years down the road, other people can only think three months ahead. However, the more that you can adopt a long-term mindset, the better prepared you'll be for the future, Newcomb says.

Here's how to get started.

1. Today: Get a handle on your cash flow

Before you can start saving for the future, you'll need to understand your current cash flow, or when money is coming in and going out of your accounts. And that's especially important because nearly half of Americans live paycheck to paycheck, according to a recent survey conducted by GOBankingRates.

"You have to accept where you're at; if you're not a saver, becoming an investor isn't where your head should be at," Newcomb says. "The more stability you build now, the more into the future you can look."

Creating a budget to track your monthly spending can help you build the habits necessary to create a longer-term plan. You can also try reverse budgeting by setting aside money for the essentials first.

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2. Tomorrow: Set specific, realistic goals

Once you've become a disciplined saver, you'll be better prepared to save for the next few years. Such goals could include things like buying a home, for example, which requires building credit and taking on debt.

Because the future can feel very abstract, it's important to identify goals that are both tangible and achievable in a specified time period. Creating a vision board for you financial life, complete with pictures, can motivate you to save because you'll be able to visualize what you're working towards, Newcomb says.

Start with milestones that are relevant to you and your natural time horizon, such as paying all of your bills on time for three months or cutting your credit card debt in half in the next year, she advises.

"Just make sure it's doable," Newcomb says. "Once you experience success, that builds momentum to do it again and again."

Jean Chatzky explains how to set money goals

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Chad Parks says that visualizing the future became much easier once he felt confident about his financial situation. And what's helped has been a big spreadsheet that the founder and CEO of Ubiquity Retirement + Savings built that has a rolling budget for the next three years and his projected balance in that time.

"It has given me a sense of calmness about my own personal finances," Parks says. And as for how he landed on three years?

"It's manageable," Park says. "I can remember three years ago, and I can picture three years in the future. It's short enough and long enough at the same time to be achievable."

3. Later: Embrace your future self

Many experts recommend a simple mental shift to help motivate you to invest for the far-off future, like retirement: Imagine your future self.

For Newcomb, age progressing her face to see what she might look like at the age of 70 has helped the inherent short-term thinker want to "save desperately" for her future, she says. "When we're young, we think we have all the time in the world, but that's why you need to make peace with your inner senior citizen."

Given some privacy concerns with a popular phone app that shows what people might look like older, you may prefer other techniques for envisioning your future self. Newcomb recommends the following mental exercise to think through a typical day in your life in the future: "What do you see? What's in the closet? What are you doing with your time?"

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Finally, it can be informative to crunch the numbers to figure out how much money you need to retire comfortably. That type of specificity can help you to see how the contributions you make today will add up over time, thanks to compounding interest.

"It's really important to be really structured about what you want your money to do for you and how you're actually going to get there," Jean Chatzky, CEO of and bestselling author of books including "Women With Money," recently told Grow.

As you become more comfortable with picturing the future, your brain will believe it's real — and something to prioritize. "The reality with money is the clearer we can get with goals, the more likely we are to meet them," Newcomb says.

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