The power of labelling your Retirement Saving

financialexpress.com:

The other day, I took my little one to play in a nearby garden. Kids being naturally curious, he bombarded me with questions about the tress, plants, flowers, and the variety of flora we encountered. As we wandered among the blooms, his questions sparked a chain of thought in my mind.

Reflecting on his inquiries, I was reminded of our own financial garden. Just like the garden we explored, our finances too can be likened to a patchwork of different elements. In this metaphorical financial garden, one corner is dedicated solely to nurturing fruit trees, representing our retirement savings. In contrast, other sections of the garden may host flowers, vegetables, or herbs, symbolizing your everyday expenses, discretionary spending, or short-term savings goals. While these areas are essential for your immediate needs and pleasures, they remain separate from the retirement orchard, as trees take longer to mature.

As we continued our walk, I was thinking about how mental accounting creates a boundary around our retirement savings, ensuring they remain untouched until they’re ready to yield a bountiful harvest in the future.

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But let’s understand how:

In the labyrinth of financial decision-making, human psychology often takes the lead, steering our choices and actions. One such phenomenon that profoundly influences our financial behaviour is mental accounting. Coined by economist Richard Thaler, mental accounting refers to the subconscious categorization of money into different mental “buckets” based on various criteria like the source of income, intended use, or time frame for spending. While mental accounting can sometimes lead to irrational financial decisions, its