4 Reasons you are falling behind with money
And how to reverse the trend; Part 2 of a 4 part series. See Part 1
In Part 1 we discussed the fact that part of the reason we fall behind with money is because we haven’t decided what we want. Part 2 is tangentially related, though it focuses on what we want NOW vs LATER.
Reason #2: You sacrifice tomorrow for today
“The ability to discipline yourself to delay gratification in the short term in order to enjoy greater rewards in the long term, is the indispensable prerequisite for success.” — Brian Tracy
Okay, I now have decided what I want, I have connected it to my core values, now what?
Well now you have to make the difficult trade-off decision of getting what you want now or later.
Denying ourselves of what we want NOW, so we can have something greater in the FUTURE is hard.
It’s that way for everyone.
You see, most animals are hardwired to follow their instinct. Whatever their instinct tells them to do, they do. They are very focused on the present.
Humans have similar hardwiring in our brains. We have chemicals in the body that reward certain actions or inactions (remember that psychology class you took in college that talked about dopamine and serotonin?)
But, humans also have the capacity to reason and make complicated trade-off decisions. We have to make sure we make those decisions intentionally, and that they are not being made FOR us by default.
How could that happen? Our lives are forever intertwined with the lives of those around us like family and friends. In addition to that, now, more than ever, our lives are intertwined with broader society. We are affected by it every day.
What we see online, in our Instagram feed, in the trending tweets, on Facebook, are messages constantly bombarding us and enticing us to get that thing will make us happy.
When everyone else’s lives look so glamorous and perfect, and ours don’t, we think that if we just had what THEY have, we would be as HAPPY as them.
Many studies have linked social media use to depression, and more importantly, you have probably seen this in your own life. I know I have.
Let’s admit it to ourselves, we feel bad when we see others on the beach in Hawaii on vacation, or with that new truck, or in their brand-new house.
This is just the way it is. We feel like we deserve to be having those same types of experiences, and until we do, we won’t be happy.
And we don’t want to wait for later to get it. We want it NOW, not LATER.
So we end up sabotaging our long-term success to satisfy our short-term desires.
There is a term for this: FOMO
FEAR OF MISSING OUT is totally a thing. And it affects us more and more now that we can see literally EVERYTHING that we are missing out on.
In their 2019 Modern Wealth Study, Charles Schwab reported the following statistics:
Nearly 50% of Millennials say they spend more than they can afford in order to participate in experiences with friends and that social media influences them to spend on experiences.
That means that we want the things that other people have. We want the experiences that other people have. Soon, our mind goes into tunnel vision and we decide we must have it.
That short-term desire all of the sudden trumps our long-term best interest.
It’s not your fault. Companies are spending millions upon millions of dollars to get your attention and purchase their products. They are really good at it. But whose agenda are you going to live by, theirs or yours?
Now, you could take that vacation and sacrifice your savings. You could also take that vacation and put it on the credit card for you to pay off later.
Those are all options available to you.
We want to live for today. We want to live in the present. We don’t want to put off our dreams anymore. Same here. But we have to make sure we are doing it with the end in mind. Take care of your future self FIRST, then take care of your present self.
Remember this:
Living only for today while neglecting to prepare adequately for the future is not a noble attempt to “live in the present”, it is willful ignorance.
It’s difficult to walk the fine line of living in the present but preparing for the future, but you can do it and it’s really not that hard.
In Darren Hardy’s book The Compound Effect, he demonstrates this principle using a daily coffee habit. By now, this may be the most over-used example of cutting costs that exists in personal finance. Do me a favor: Forget about the coffee, and focus on the concept.
He talks about how buying one $4 cup of coffee everyday on the way to work will cost you over $50,000 over the next 20 years! Here is his reasoning:
“Did you know that every dollar you spend today, no matter where you spend it, is costing you nearly five dollars in only 20 years (and ten dollars in thirty years)? That’s because if you took a dollar and invested it at 8 percent, in twenty years, that dollar would be worth almost five. Every time you spend a buck today, it’s like taking five dollars out of your future pocket.”
This is a great example of playing the long game. Focus on the end and you will discover what you need to do in the present. Whether it’s coffee or ANY OTHER decision you make.
Substitute coffee for whatever it is in your life that you spend money on that stops you from reaching financial freedom. Whatever it is that is less important than your long-term goals.
Other small decisions like eating out for lunch or dinner instead of cooking at home and eating leftovers are places to look first.
There are huge decisions as well. One of the biggest saboteurs out there is getting a nicer car and a bigger house. We feel like our status improves when we have these tangible things. It communicates to everybody around us just how great we are doing in life.
It might even make us feel better about ourselves. Temporarily.
Guess what? You are likely just putting off your goal of financial freedom even further because you want to inflate your ego.
You buy things you don’t need to to impress people you don’t like.
We all do it sometimes. It doesn’t make sense. It is irrational. But we persist in doing it. But we will only persist in doing it if we are not intentional about our money decisions.
Remember, these are all your decisions to make. I don’t care what you choose. Just make sure to consider them with the end game in view.
So, how do we prepare for the future while still enjoying the present?
- Realize that money (or spending money on things) will not bring you happiness. With very few exceptions, spending money will give you a short-lived happiness which then quickly falls back to the baseline. Much more important to your happiness is the extent to which you feel fulfilled in your life. That will more often come from spending quality time with loved ones and helping others than getting more money. If you rely on spending money to bring you happiness, good luck!
- Make a plan of where you want to be financially in the next year, in 5 years, and in 20 years. Then plan to get there. Can you increase your income? Yes. Can you make wise investment decisions? Yes. Can you spend much more intentionally in a way that will give you a more fulfilling life? Yes.
- Save what you need for the future, then spend the rest. Pay yourself first. Put it on auto pilot. Never think about it again. You won’t even miss it.
- Take initiative and invest in yourself. Spend the time and money to educate yourself about how finances work. Go to a source you trust and learn everything you need to about retirement, insurance, increasing income, saving, spending, planning, retirement, etc. You then become the master of your future. You will have the knowledge to navigate your changing financial situation.
Don’t let FOMO ruin your future.
Be more measured and intentional about your money so you can get what you want, and still prepare for the future.
You have the ability to have your present AND your future, but it does require a plan on your part. It takes work. But anyone can do it. Anyone.
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