Now and then
We’re often told to live in the moment, to enjoy the now. It can be decent advice, if you’re not appreciating the good things about your life, and dreaming too much of things you don’t have. There’s a whole mindfulness industry designed to help people with this: not having your mind pulled back into the past (Why did I do that? What might have been?) or into the future (What’s going to happen? What do I want?). How to be peacefully rooted in the moment.
But sometimes there’s a better chance of happiness if you can keep the future in mind too. Particularly when it comes to money. Here’s why.
If I offer you £10 today, or £20 in two weeks, what would you take?
The £10, right?
Humans are all subject, to one degree or another, to something called ‘present bias’ in decision making. This is our tendency to over-value immediate benefits ahead of longer term ones.
Present bias shows up a lot in our money habits. We can be seduced by easy credit in order to have things we want right now, but don’t always calculate our ability to pay for them in the future. And those January sales are so tempting, right? There’s a lot of ‘buy now, pay later’ offers out there at the moment, companies who will smooooth out your payments for you, offer you ‘alternative ways to pay’, all with initial interest-free periods.
Don’t be fooled. Every single one of these businesses is built on a debt-for-profit model: they rely on a percentage of payments not being made on time, and these customers paying more than they originally borrowed.
The second issue with present bias is how difficult it can be to imagine, plan for, and enjoy the longer-term future. The biggest example of this is probably pension planning. One day you’re going to wake up and be 65 or 70, and need some money. But it also affects much shorter term saving and spending.
If you’re feeling a financial pinch this January, well, you’re not alone. According to the Bank of England, the average family spends around £800 more in December than they do in ‘normal’ months. Two thirds of us spend January paying off credit cards and overdrafts. In fact, the majority of us won’t have fully paid off our Christmas debts until the end of March. You’ve then got a short window before the other expensive months come along. In June, July and August most of us are likely to be spending more on holidays, socialising in the fine weather, and maybe childcare (the average adult spends over £300 more per month across the summer). You experienced this last year, and the year before, and the year before that, but chances are, with all the stuff you’ve got going on, it somehow slips your mind until…about mid-June.
We all need help in managing the ‘now and then’, our present and future choices, immediate and more deferred gratification. One way to do that with money is to think in terms of a twelve month, not a one month, money cycle. Just because you get paid every four weeks or so doesn’t mean each month is the same. Christmas might happen to be in December, but it’s an annual cost. Your trip to Greece might be in July, but it’s not a July cost, it’s an annual cost.
At HyperJar we talk a lot about forward thinking money. OK, it’s a slogan, but it’s more than that: it’s built into the structure of our product, and into a commitment to helping people live financially happier, clearer lives, with less reliance on unnecessary debt. Jars will help you with different planning goals, and seeing everything in one place will make you feel calmer and clearer about money.
So, create your Christmas 2020 Jar now, and start putting money aside. Aim for small, but regular steps. Or start a Summer Holiday Jar. Get into impulse saving, not just impulse spending. We all tend to be more focused on what’s happening to us right now, or just around the corner. But if you want to be enjoying life just as much in three, six, nine, twelve months from now – make it happen with HyperJar.