Save More Tomorrow™

• The Bottom Line: Save More Tomorrow™ is a brilliant behavioral strategy that automates your savings increases with every pay raise, making it painless to build the capital you need to be a successful value investor.
• Key Takeaways:
• What it is: A system where you pre-commit to automatically increase your savings or investment contribution rate whenever you receive a salary increase.
• Why it matters: It masterfully uses your own psychological biases (like inertia and aversion to loss) for you, not against you, to consistently build your investment war chest. See behavioral_finance.
• How to use it: You either enroll in your company's “auto-escalation” feature in your retirement plan or create a “do-it-yourself” version by setting an annual calendar reminder to increase your contributions after your raise.

Imagine you want to get fit. You have two choices. The first is the “Traditional Method”: every single day, you must find the willpower to get off the couch, put on your running shoes, and go for a jog. Some days you'll succeed, but on many others, you'll think, “I'm too tired,” or “I'll start tomorrow.” Now, imagine the “Save More Tomorrow™” approach. You hire a friendly personal trainer who will only show up one year from now. You agree today, while you're motivated, to a future training schedule. When the day comes, the trainer is already at your door, shoes in hand. You just go along. Better yet, the trainer only takes a small slice of the extra energy you'll have a year from now. You don't even notice the effort. That, in a nutshell, is Save More Tomorrow™ (SMT). It's a concept pioneered by behavioral economists Richard Thaler and Shlomo Benartzi. They recognized a simple human truth: saving money feels like a loss. It hurts to see our take-home pay shrink, even if we know it's for our own good. We suffer from present bias—we'd rather have a little extra cash for a nice dinner tonight than a much larger sum for retirement in 30 years. SMT brilliantly sidesteps this pain. Instead of asking you to save more from your current paycheck, it asks you to commit today to saving a portion of your future pay raises. Think of it like an escalator for your savings. You step on at a comfortable level (say, saving 5% of your income). Then, with each pay raise, the escalator automatically lifts your savings rate up a notch—to 6%, then 7%, and so on. Because the increase only comes from money you weren't used to having anyway, you don't feel the pinch. Your take-home pay still goes up with each raise, just not by the full amount. You've painlessly increased your savings without ever having to make a difficult, willpower-draining decision again.

“By enlisting in Save More Tomorrow, you are making a commitment for your future self. It's like a Ulysses pact, where you are binding yourself to a virtuous course of conduct.” - Richard H. Thaler, co-creator of the concept and Nobel laureate.

This simple “nudge” is one of the most powerful tools ever designed for personal finance, transforming savers from their own worst enemies into disciplined, automated wealth-builders.

At first glance, a personal savings strategy might seem disconnected from the complex world of analyzing businesses and buying undervalued stocks. This is a profound mistake. For a value investor, a robust and automated savings engine like SMT isn't just helpful; it's the very foundation upon which a successful investing career is built. 1. Capital is Your Ammunition Benjamin Graham and Warren Buffett can give you the world's greatest investment framework, but without capital, it's just an academic theory. Your ability to buy wonderful companies at fair prices depends entirely on having cash ready when opportunities arise. SMT is the most effective system for systematically building that ammunition. Every dollar you automatically save is another soldier in your army, ready to be deployed when Mr. Market offers a bargain. A value investor without capital is like a hunter without a rifle. 2. It Forges Behavioral Discipline Value investing is 90% temperament and 10% intellect. It requires immense patience and the emotional fortitude to act contrary to the crowd. SMT is a training ground for this exact discipline. It forces you to adopt a long-term perspective and automates a key financial decision, removing emotion and procrastination from the equation. By “setting and forgetting” your savings plan, you are practicing the same mental skill required to “buy and hold” a great business, ignoring the market's manic-depressive swings. It builds the habit of letting a rational system, not fleeting emotions, guide your financial life. 3. It Puts Compound Interest on Steroids Albert Einstein supposedly called compound interest the eighth wonder of the world. SMT is the engine that supplies its fuel. Compounding works best with two ingredients: a long time horizon and consistent, increasing contributions. While a normal savings plan provides a steady drip of fuel, SMT hooks up a firehose. By constantly increasing the principal you invest, you dramatically accelerate the compounding process. The wealth you build with a 15% savings rate is exponentially greater than with a 5% rate, and SMT is the most painless way to bridge that gap. 4. It Aligns Your Actions with a Long-Term Philosophy Value investing is inherently a long-term game. You don't buy a piece of a business hoping it will pop 20% next week; you buy it because you believe in its value over the next decade. SMT operates on the exact same philosophy. It's not about a quick fix. It's about making a small, smart commitment today that will yield enormous, life-changing results over many years. It structurally aligns your personal finances with the patient, forward-looking mindset required to be a true value investor.

Since SMT is a behavioral concept and not a financial ratio, applying it is about setting up a system.

There are two primary ways to implement Save More Tomorrow™. Method 1: The “Push-Button” Approach (If your employer offers it) Many modern retirement plans (like 401(k)s in the US or some workplace pensions in Europe) have a feature called “auto-escalation” or “annual increase.” This is SMT by another name.

1. Step 1: Log into your workplace retirement account portal.
2. Step 2: Look for contribution settings. You should see an option like “Annual Increase,” “Auto-Escalate,” or “Save More Tomorrow.”
3. Step 3: Activate the feature. You'll typically be asked two things:
   • Annual Increase %: How much you want your contribution rate to increase each year. A 1% increase is a great starting point.
   • Maximum Contribution %: A ceiling for the plan. Set a high but realistic goal, like 15% or 20%. The plan will stop escalating once you hit this target.
4. Step 4: Confirm your choices. That's it. The system is now automated and will handle the rest for you.

Method 2: The “Do-It-Yourself” Approach If your employer's plan doesn't offer auto-escalation, you can easily replicate it with a calendar reminder.

1. Step 1: Decide on your “SMT Rules.” Be specific. For example: “Every year on February 1st, after my annual review, I will increase my retirement contribution rate by 1%.” or “I will dedicate 50% of the cash value of my next raise to increasing my investments.”
2. Step 2: Open your digital calendar (Google Calendar, Outlook, etc.).
3. Step 3: Create a recurring annual event with a clear title like: “ACTION REQUIRED: Increase Investment Contribution.”
4. Step 4: In the event description, write down the exact “SMT Rules” you decided on in Step 1.
5. Step 5: When the reminder pops up each year, simply log into your retirement account and manually make the change you committed to a year earlier. This still leverages the power of pre-commitment.

The “result” of SMT isn't a number you analyze, but an outcome you experience: a dramatically larger investment portfolio built with minimal psychological effort. The impact is best understood through comparison. Let's look at the difference between a static savings rate and an SMT-style escalating rate. Assume a starting salary of $60,000, annual raises of 3%, and an average annual investment return of 7%.

As the table clearly shows, the SMT Saver, by making small, painless, automated increases, ends up with nearly double the portfolio value of the Static Saver after 20 years. This is the tangible result of putting your savings on an escalator instead of forcing yourself to take the stairs. The initial effort is identical, but the long-term outcome is profoundly different.

Let's meet two friends, Alex and Ben, who both start new jobs at 25, earning $50,000 per year. They are both smart and understand the importance of investing for the future.

• Ben takes the “I'll do it later” approach. He starts by contributing 5% of his salary ($2,500/year) to his retirement account. He tells himself, “Once I get a big raise, I'll really ramp up my savings.” Every year, he gets a 3% raise. His paycheck gets a little bigger, and he quickly gets used to the new amount, spending it on lifestyle upgrades. The “big raise” never feels big enough to start saving more, and his contribution rate stays stuck at 5%.
• Alex takes the Save More Tomorrow™ approach. She also starts by contributing 5% of her salary. However, when she sets up her account, she ticks the “auto-escalate by 1% per year” box, setting a cap of 15%. The first year, her experience is identical to Ben's.

Now, let's fast forward 15 years to when they are 40. We'll assume they both earned an average of 7% per year on their investments.

By age 40, Alex's portfolio is nearly twice the size of Ben's. The most crucial part of this story is the experience. Ben spent 15 years feeling a nagging guilt that he wasn't saving enough, always waiting for the “perfect” time. Alex, on the other hand, spent almost no mental energy on the decision after that first day. Her wealth grew automatically in the background while she focused on her career and life. She built a powerful investment base painlessly, demonstrating the incredible power of a well-designed system over simple, and often flawed, willpower.

• Works With Human Nature: Its primary strength is leveraging psychological biases like inertia, procrastination, and loss aversion for your benefit rather than trying to fight them with brute willpower.
• Painless Automation: Once set up, it requires no further decisions. By tying increases to raises, it avoids the psychological pain of reducing one's current take-home pay, making it a “painless” way to save.
• Builds Discipline: It's an excellent tool for building the long-term, systematic habits that are essential for successful value_investing.
• Extremely Effective: As shown in the examples, this simple behavioral nudge can lead to dramatically different, and better, financial outcomes over the long run.

• Starting Too Low: The system is powerful, but if your initial savings rate is extremely low (e.g., 1%), it will take many years to reach a meaningful level. It's important to start at the highest comfortable rate possible.
• Complacency (“Forgetting” the Cap): Users might set a cap that is too low (e.g., 8%) and then “forget” about it, stunting their long-term potential. Your target savings rate should be ambitious (ideally 15% or more).
• Ignores Other Windfalls: The classic SMT model is tied to salary increases. A disciplined investor should also apply the same logic—saving a significant portion—to irregular income like bonuses, tax refunds, or inheritances.
• It's Not an Investing Strategy: SMT is a world-class savings strategy. It solves the problem of how to accumulate capital. It does not, however, tell you how to invest that capital. You still need a sound investment plan, whether that's buying a low-cost index_fund or performing fundamental_analysis to find undervalued companies.

• behavioral_finance
• compound_interest
• dollar_cost_averaging
• pay_yourself_first
• long_term_investing
• margin_of_safety
• financial_independence