Where does the present end and the future begin? How you define this largely determines how you think about everything in your life that involves tomorrow.
Most of the financial planning process involves the transition from one period of time to another. I recently came across some research by Professors Hal Hershfield at UCLA and Sam Maglio from the University of Toronto on this important topic.
It’s somewhat trite to repeat that you ‘have to be patient’ or ‘focus on the long-term’ when the skills and behavior required to actually do that are incredibly difficult to master. We’ve all seen sci-fi movies about time travel and that’s exactly what thinking about the future involves; traveling, mentally at least, from one time and place to another.
Of course, actual time measurement is objective. The dividing line between today and tomorrow is easy to determine. What’s not so easy to understand is how different folks define the present and the future. That’s precisely what the research by Professors Maglio and Hershfield addressed.
The Present vs. The Future
This research found that if people believed the present ended soon then they were interested in learning how to save for tomorrow. Conversely, if they imagined the present ended later, they were less likely to allocate money toward that objective.
The authors infer that blurred or fuzzy divisions of time lead to less motivation to prepare for that future period. When individuals denote the present as ending sooner, they are more apt to be interested in saving for tomorrow.
Professor Hershfield writes, “Perceiving sharp divisions, (between time periods), can be beneficial when it comes to planning, and this may be especially true when it comes to decisions with serious financial consequences.”
Time Horizons and Distinctions
One of the less visible obstacles to seeing these time distinctions more clearly can be found in those around you. Your friends, spouse, colleagues, and others often unintentionally work at cross-purposes to this important objective because of how they personally perceive these time divisions.
Time horizons and distinctions between periods of time often change with your circumstances. It’s easy to say that you have a long-term mindset when everything is rosy, but much more difficult when outside conditions are more challenging.
Part of the problem is we want our future, tomorrow, to start at a very precise time. We often hear clients say, I want to retire in January 2024. That’s very specific and may or may not be reasonable but what if that date had been January 2020 and the world was about to be turned upside down? Would some flexibility with the date have a positive impact on your real wealth?
Financial planning is built around the reality of future uncertainty. You can’t control the markets or the economy but you can prepare for the inevitability of bad events happening in the future. Start there.