Before you read any further, imagine a day in the future.
Don’t think much about it, make a note of the features of that day, and then consider how far into the future that day lies.
Now you can read on.
Research has shown that we all think differently about the future. Our mental time horizon is a measure of how far ahead each of us thinks into the future, and it is different for all of us.
When asked to imagine the future, some of us will naturally think about next week, others will think about next year, and others will think about a day ten or twenty years ahead.
Morningstar has recently identified a connection between our mental time horizon and our approach to cash management, debt reduction, and our savings behaviour — with the research showing that those with a long mental time horizon have on average, 20 times more money saved, than those with a shorter horizon.
But it remains common to give more weight to immediate needs and discount the future, and this can hurt long-term goals.
Morningstar’s work adds to the body of work on deferred gratification (when you resist the temptation of an immediate reward in preference for a later reward), which is closely linked with academic success and physical health.
Now let’s go back to the day you imagined at the start of this post.
If you thought about next week, don’t despair, all is not lost – you can do something about it.
It seems that the best approach is to make gradual changes. So, rather than trying to imagine 20 years into the future, which may seem impossible, you should start thinking about what things will be like next year, and making plans based on this.
Once you have got used to this, you can start thinking about five years, ten years and eventually twenty years.
And, of course, it’s a lot easier if you work with a Financial Planner on this.
The nature of our job means that we have to think long-term, and the discipline of Financial Planning suits those who are good at deferring gratification.
But the research shows that it’s crucial for your Financial Planner to recognise that when you are thinking about the future, you may be thinking about a much closer future than he or she is.
