Managing money well involves living in the tension between now and later. Right now, we have bills to pay, groceries to buy, and this summer’s vacation to plan. Later, we sometimes remember, we’ll need a nest egg to live on or we’ll have college bills to pay. Now looms large; it’s where we live, what we can see. Later looks distant, vague.
In part, that explains why so many have so little set aside for the future. All sorts of attempts at getting people to save more for their later years have been made — from finger-wagging lectures to automatically enrolling new employees in 401(k) plans. Some attempts are more successful than others, but all fight the phenomenon known as hyperbolic discounting — in essence, given a choice, most of us prefer a reward that arrives sooner than later.
Try to imagine
Marketplace radio host David Brancaccio recommends an exercise promoted by behavioral economists: before making a big financial decision, try interviewing your future self.
It is this future self who might judge that it is right to spend a fortune on college because my children will end up with more fulfilling lives. Yet my future self might warn me from 2045 that he is stuck eating cat food because of that golden $17,000 Apple Watch I really had to have [now].
Another idea is to interview real people — those you can relate to who are a bit further along in life and can speak to their actual experiences, what they wish they had done differently, and how they would advise you.
Brancaccio talked with a 93-year-old man he admires named Herb.
I interrogated my future self, I mean Herb, about several practical choices. I haven’t been saving enough for retirement because of those aforementioned college tuitions. This year I might be able to kick in $10,000 to a 401(k), but I could raise the contribution to $16,000 if I canceled a much-needed family vacation that we were planning in Spain.
Herb’s answer was swift. Cut the cost of the vacation in half and put the cash saved toward retirement. ‘You can do it both ways,’ he said. I figure that might be easier if we disinvite our three young-adult children or switch to a vacation that does not involve airfare, such as a drive to a cabin in my home state, Maine.
Another factor that stands in the way of saving more for the future is that we have a hard time envisioning our future selves, or even seeing our current selves as we really are. I still think I should be able to hit a golf ball as far as I did when I was in high school, despite reality hitting me in the face again and again. Just this morning, one of the friends I’ve been vacationing with every year for the past 20-plus years sent a picture of one of our adventures from a long time ago. It brought back some good memories, and at the same time, it was a little jarring. We’ve all changed so much!
If you’re having a hard time envisioning your future self, look at your past self by finding a picture from 20 years ago. Twenty years from now, you’ll be just as shocked as you look at a picture from today. Even better (or worse!), try one of the free face-aging apps that are readily available, such as Aging Booth. That’ll give you some sense as to what you might really look like down the road. If that doesn’t get you to save more for your later years, it might at least prompt you to wear sunscreen more often!
What have you found most helpful in motivating you to save for future goals like retirement or your kids’ college costs?