Column: Why Future-Oriented Thinking Sabotages Your Savings

Thinking too far into the future makes it difficult to save money. But adopting a present-focused mindset can help Singaporeans save up to 78% more.

Funny Money is a column by Alevin Chan that examines our irrational relationship with money. Why do we spend more than we have, even though we know better? Why do our wallets automatically open at the merest hint of a sale? Why do we scrimp and starve for days, only to blow through a weekend champagne brunch? Join us as we explore why we suffer from funny money.

Let’s say you are thinking of taking a trip at the end of the year. Maybe it’s to some new, exotic, far-flung locale you’ve been hooked on ever since you saw those Instagram photos.

Because you firmly believe that inclusion of your face is what is needed for those photos to truly become the classics they can be, you vow to visit the exact same spots and take selfies until your posts drown out all opposition. Or you run out of battery.

Oh there’s the small matter of actually saving up enough money so you can have your holiday in a financially prudent manner, but you’re confident you’ll somehow gather up the necessary funds.

As you daydream about walking off the plane and into the frame of that perfect selfie, chances are you’re experiencing a host of warm, gushy feelings like optimism and hope and how everything is going to be instantly better.

And that is why you’re probably going to fail.

A Long-term Mindset Makes You Save Less Money

You've probably encountered a lot of personal finance tips that tells you to focus on some future goal. You’re told to imagine how good it would feel to have money in the bank for that dream wedding, that designer suit, or to be able to retire comfortably.

However, new research suggests that invoking a future-oriented mindset sabotages your efforts in saving money. This seems counter-intuitive; when trying to achieve something, doesn’t it make sense to dangle some future reward in front of us? How else do we find the motivation to do something as difficult as sticking to a budget?

Yet, the evidence seems to say otherwise. Study participants were asked to think about the passage of time in one of two ways - as cyclical; made up of many repeating periods, or linear; as straightforward progression focused on the future.

At the end of the study, participants in the cyclical group reported more savings than their counterparts. That’s to say, those that were primed to keep their focus on the present ended up saving more money.

But it was how much more they managed to save that was eye-opening: the present-oriented group managed to save 78% more than the future-oriented group.

It Doesn’t Pay To Be Optimistic

Said Leona Tam, Professor of Marketing at the University Wollongong, and co-author of the study linked above, “A cyclical mindset leads to more concrete and detailed actions when implementing their plans, whereas a linear approach results in planning of the savings task in more abstract terms.”

Tam’s comments above was prompted by the observation that thinking about time as a repeating sequence of events (much like how the seasons come and go) made individuals more likely to take action in the here and now. It also reduced their levels of optimism when it comes to future events.

Conversely, a linear mindset made individuals think in more abstract terms (which results in less action taken). Crucially, it also promoted a more optimistic view of the future, likely as a side-effect of a cognitive bias known as the Optimism Bias.

Optimism Bias is the irrational tendency to ascribe ourselves a higher chance of avoiding a negative event. In other words, we tend to think that we are less likely to fall victim to a negative event, compared to others, even if we have no rational basis for thinking so.

When it comes to saving money, Optimism Bias makes us believe the future will be somehow better. We’d earn more money, have more discipline, or have more time to gather the necessary money for retirement, for instance.

Explaining why focusing on the future does not work, Tam said, “People with a linear orientation put savings off because they believe they can easily catch up later.”

However, this leaves us unprepared when life doesn’t go as planned. We may fail to attain the wages we want, or our expenses may increase in unexpected ways.

And another hurdle that comes with adopting a future-oriented mindset: it becomes easy to tell ourselves we’ll just start ‘tomorrow’.

Focus On The Present To Save For The Future

Tam has a strategy for those of us struggling to save money. Focus only on what you want to save this month. Don’t think about how much you need to save next month, next year, or by the time you retire. Think about this month’s savings, and put that amount aside.

Yes, it does sound obvious. After all, what is saving money but an ongoing repetition of putting money aside?

The key difference is the mindset. By adopting a cyclical view of life, we become more focused on the present and make concrete plans for necessary tasks. “People approaching the saving task in a cyclical fashion emphasise recurrent behavioral patterns,” confirmed Tam.

We also take a less optimistic, more grounded view of the future, which spurs us to take the needed actions. In saving money, that’s a very good thing.

That’s not to say we should all take a dim view of the future, nor give up on our dreams. (Yes, even if those dreams are to insert yourself into every popular Instagram hotspot). Keep having a bold, grand vision of the future filled with unicorns and rainbows - after all, we all need to have dreams to live for.

But, when it comes to getting ourselves financially ready for those dreams, keeping to small, specific steps that we can consistently complete is the way to go.

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By Alevin Chan

A Certified Financial Planner with a curiosity about what makes people tick, Alevin's mission is to help readers understand the psychology of money. He's also on an ongoing quest to optimise happiness and enjoyment in his life.