I fight splurges less often than I used to, but the urge still pops up occasionally. Sometimes, it's okay to splurge; but mostly, I find myself wanting to resist temptation. There are a few questions I ask when I'm mulling over a purchase:
- Do I have money saved for this?
- Do I feel like I'm stealing money from a financial goal?
- Am I simply being impulsive? Will I regret this in an hour?
Another way I decide on my spending is by considering my future self. The first time I ever came across the phrase “future self” was in a personal finance book. In the money world, the idea of “future selves” is discussed a lot. And rightfully so — a study found that, just by picturing ourselves in the future, we save more money.
In Increasing Saving Behavior Through Age-Progressed Renderings of the Future Self, researchers tested the savings behaviors of college-age participants. They showed some subjects a digitally altered image of themselves at 70-years-old. The control group was shown a photo of their present self. Researchers found that those participants who viewed a photo of their “future self” saved twice as much money in a retirement account than the control group.
Your future self is like a stranger
It's not news that the younger we are, the more distanced we feel from our future selves. It's why most of us (including myself) wait so long to take retirement seriously. At 20, I didn't feel connected to Future Kristin. The Kristin that I am now seemed like a stranger to me back then. Even the Future Kristin of a few years from now seems a little hard to fathom.
In the paper, the researchers explain how this disconnect affects our savings habits:
“To people estranged from their future selves, saving is like a choice between spending money today or giving it to a stranger years from now. Presumably, the degree to which people feel connected with their future selves should make them realize that they are the future recipients and thus should affect their willingness to save.”
Put that way, it's kind of understandable that we have a hard time considering the future. If it feels like giving money to a stranger, it's no wonder we want to keep it for ourselves, now. It's no wonder we're tempted by the urge to spend.
Obviously, there's benefit to connecting with our future selves.
Bridging the gap between present and future
I've referenced this research before, but Saving in Cycles is a similar study that looked at how people save. In that study, researchers found that when subjects considered their present conditions rather than a future goal, they saved better. Basically, when participants thought “cyclically” (this is my financial situation now; this is how it will always be), they had a significantly higher rate of savings.
At first, I thought this finding was contradictory to the former study. But when I think about it, it's less about focusing on present vs. future and more about bridging the gap between the present and the future. Connecting that gap seems to be key to learning to be a better saver.
Getting to know your future self
But what does it mean to consider your future self? According to the study, it might be as simple as just picturing yourself in the future. Simply seeing ourselves aged might make us realize that, yes, we will be that “stranger” of the future.
Interestingly, when Merrill Edge heard about the research, they launched a “Face Retirement” app. It's basically a tool that aged consumers so they could see how they'd look in the future. The idea was to encourage customers to save more.
Marketing gimmick aside, I guess it can't hurt. Psychologist Daniel Goldstein co-authored the “Future Self” study. In a TED talk, Goldstein explains that he's working to develop similar digital tools for visualizing your future self — something he calls a “behavioral time machine.” But if you prefer traditional methods, Goldstein also mentions “commitment devices.”
“Now I'm a big fan of commitment devices actually. Tying yourself to the mast is the oldest one, but there are other ones such as locking a credit card away with a key or not bringing junk food into the house so you won't eat it or unplugging your Internet connection so you can't use your computer. I was creating commitment devices of my own long before I knew what they were. So when I was a starving post-doc at Columbia University, I was deep in a publish-or-perish phase of my career. I had to write five pages a day towards papers or I would have to give up five dollars.”
Commitment devices can be helpful tools to force you to consider your future self. Here are a few devices and traditional personal finance tenets that helped me “bridge the gap”:
- Automate your savings: Paying yourself first. Don't give yourself the time to decide whether you should save for retirement or spend now. Instead of testing your willpower, your money will automatically be allocated to your future self.
- Set small milestones: The Simple Dollar‘s Trent Hamm wrote about this, and his advice stuck with me: “When you break your goal down into small pieces with milestones, the day-to-day actions you need to take to achieve those goals becomes clearer. It's easier to figure out how to save $175 this week than how to save $50,000 over the next five years.”
- Live below your means: Don't spend money you don't have. Mull over purchases and learn to avoid overspending.
These bullet points aren't always easy, but I think remembering that your future is part of the present can keep you on track. Overall, simply realizing there is a gap between your present and future self is a big step in the right direction. Especially if you're young or new to personal finance and have just started creating your financial goals, connecting with your future self is important.
Even if you already are on the right track, I think there's still benefit to connecting with your future self. I practice the above habits consistently, but I still like to consider Future Kristin outside of those “commitment devices.” As I mentioned, doing so helps me make better spending decisions. It helps me decide if I want to increase those automatic payments. It keeps me more grounded in reality too, knowing that who I am today and who I'll become is the same person. For me, this is key to working toward my goals, money-related or otherwise.
Kristin Wong is a freelance blogger who frequently writes about relationships for MSNâ€™s The Heart Beat blog. After paying off her student loan debt, Kristin decided it was time to pursue her dream and also put her English degree to use. She scrimped, saved and in 2010, left her hometown of Houston, Texas to pursue a writing career in Los Angeles. Since then, she has written for television, web, and occasionally, sketch comedy. When sheâ€™s not attached to her laptop, Kristin enjoys baking, amateur gardening, listening to 60s rock and exploring her city.