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Eyes Forward

Jonathan Clements  |  December 21, 2019

“DON’T STOP thinking about tomorrow,” sang Fleetwood Mac. It’s a shame they weren’t financial advisors.

We save money today so that we—or our heirs—can spend at some point in the future. A good tradeoff? I strongly believe that it is, and you wouldn’t be a HumbleDollar reader if you disagreed. Still, during this season of holiday shopping joy, it’s worth reminding ourselves that, yes, we should indeed think about tomorrow.

Living for Today. There are two major reasons to focus on today and, I’ll readily concede, they are compelling. Reason No. 1: It offers the chance for immediate gratification. We get the thrill of spending right away and, perhaps just as important, we don’t have to summon any self-control or ponder alternative uses for the money. We see it, we like it, we buy it. End of story.

Reason No. 2: We may not be around tomorrow. I’m not sure many people lie on their deathbed thinking, “Wow, it’s such a bummer, I have $3,000 in my IRA that I never got to spend.”

Still, many Americans appear to be leaving nothing to chance, their behavior today suggesting they don’t expect many tomorrows. You can see this in the failure to save for retirement, the refusal to buy income annuities, the preference for lump sum payouts over monthly pension checks, and the rush to claim Social Security at age 62, the earliest possible age. For most of us, this pessimism isn’t justified, as the actuaries will attest. But it will, alas, be justified for an unlucky minority—and perhaps we’re overly influenced by stories of folks who die relatively young.

Thinking About Tomorrow. If immediate gratification and the risk of an early demise drive us to spend today, what might persuade us to delay until tomorrow? I can think of five rock-solid reasons.

First, waiting to spend offers the chance for eager anticipation—a drawn-out pleasure that, I’d argue, easily surpasses the fleeting satisfaction delivered by impulse purchases. For instance, I try to plan my vacations far in advance, so I have months to look forward to each trip.

Second, if we delay spending, we’ll typically make more thoughtful decisions—and we’re less likely to end up with stuff we regret buying. Don’t believe me? Might I suggest touring your basement? How about looking through your closets?

Third, by spending a little less today so we have money to spend tomorrow, we buy ourselves a sense of financial security. I view this as one of life’s great financial tradeoffs. By eschewing some of today’s purchases and instead socking away the money, we buy ourselves long-term happiness. That happiness comes from knowing we can easily cover the bills that lie ahead, we won’t be knocked off course by surprise expenses and we aren’t deeply in hock to the credit card company.

That brings me to my fourth reason: It isn’t simply that $100 not spent today means we’ll have $100 to spend in the future. With careful investing, that $100 of forgone spending might become $400 or $500 of retirement spending, thanks to investment compounding. Similarly, $100 borrowed today might cost $200 or $300 to repay, once interest is factored in.

Finally, we should never forget that there’s a high likelihood that one day we’ll be retirees. For instance, if we’re age 20 today, there’s an 85% chance we’ll live to age 65. Make no mistake: Our future self will be grateful for any money we save and for all the debt we don’t take on. Like exercising regularly, not smoking, drinking in moderation and eating healthily, spending less today shows that we care about the person we’ll become.

All that said, we need to strike a balance between today and tomorrow. We shouldn’t delay all gratification. For 80% of the population, this isn’t a risk. If anything, most people need to focus even more intently on their financial future. But for the frugal 20%—the sort of folks who regularly visit this site—there is indeed a risk that they have their gaze too firmly fixed on tomorrow.

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Low BlowsSaving Myself and Breaking Bad. Jonathan’s latest books: From Here to Financial Happiness and How to Think About Money.

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stelea99
stelea99
1 year ago

One challenge of thinking about the future is finding the balance point where you have enough to feel safe and comfortable in retirement, without having either too much put away, or not enough. What seemed like just barely enough to retire at 55, has turned into way too much at 73. Unfortunately, there is no way to predict what market conditions you will enjoy after retirement. Will you enjoy a decade like the last ten years, or the 1930’s?

oaklandrefugee
oaklandrefugee
1 year ago

i found this site to be very helpful: i-orp.com

wtfwjtd
wtfwjtd
1 year ago

Good analysis Jonathan. I would argue that a *little* frugality now is far less painful than a later reality of being broke, with no savings–and our best and highest income-producing years well behind us. Sort of like a variation of Pascal’s Wager I guess–having an excess to spend in the future, because you “believed” that you would live to see your future, and in the life-enhancing properties of saving and investing, is a lot easier to deal with than the “unbelief” that you won’t have to worry about your future because you probably won’t live to see it anyway, so spend it all now!

So now you’ve survived to see it–as eighty-some-odd percent of people will–and you look and feel foolish (and worried) because you’re flat broke, and your body’s all worn out from a lifetime of work. And yet, there’s apparently a lot of people out there that are entertaining the fantasy that they are somehow going to be able solve their little problem of not saving by working ’til they die. You know and I know, it just don’t work this way–at some point in most people’s lives, retirement is no longer a choice, but a cold, hard reality of no longer being able to work, as in retirement is forced upon us whether we want it or not.

I guess some of us have a hard time facing our own mortality at times.

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