Save for Now or Save for Later? Where’s the Balance?
I’m fairly actively involved in a website called Brightscope, where, among other things, you can find out information about your 401k provider and ask questions of financial advisors. A recent question sparked a lot of discussion and some controversy. The question was whether or not you should save for now or save for later. The person wanted to know how to balance long-term goals like retirement, which she had handled through investing in her 401k, with shorter-term goals, like buying a house.
This is a tricky question to answer because it really belies the battle that we have between our thinking selves and Monkey Brain. For those of you who are new readers, Monkey Brain is what I call the limbic system in our brains. It’s the one which evolved from way back when, in the times when we were concerned about survival on a minute-to-minute basis. Since back in the good old days, we weren’t expected to last very long, we sought immediate gratification. No point in squirreling away the kill for later if we weren’t going to be around to eat it.
Monkey Brain is still very prevalent in our lives. He’s the one who tells you that calories you eat on vacation don’t count and that you can start going to the gym tomorrow. He wants gratification right now. Can’t afford to pay cash for the 183” flat screen TV going into the man cave? No problem. Charge it on the credit card and you can deal with it in the future.
On the other hand, we have the thinking self, which is the cerebral cortex. It’s the part of your brain which is responsible for making “adult” decisions, like deferring gratification and sacrificing a little so that you’re not consigned to eating cat food and being a bag lady in the future. Naturally, since your thinking self is inclined to include future versions of you into consideration, there’s quite the tension between Monkey Brain and your thinking self.
The question of how to handle the balance also depends on where you are in the continuum of life. The younger you are, the more of a future you have in front of you; whereas, as you get older, you start to contemplate spending money on things to have and do now while you can still enjoy them. It’s the paradox of balancing a safety net with wanderlust, since you want to travel while you’re young, but probably can’t afford to travel much, while, when you’re older, you may not physically be able to travel as much as you want.
Financial planning textbooks have a stock answer for this question: the accumulation phase and the decumulation phase. In the accumulation phase, you’re investing and saving and planning for your future when you no longer have an active income. In the decumulation phase, you’re living off of your stockpiled assets and the dividends, capital gains, interest, and in some cases, income that they throw off.
Easy enough, right?
But how do you know when to flip the switch, and where’s the balance now between the present and the future?
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Jason Hull is a Fort Worth fee only, hourly financial planner who serves clients in Fort Worth, TX and Dallas, TX as well as serving clients nationwide.
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