When I first graduated from college, I was lucky enough to get a pretty good job almost immediately. In fact, my first day at that new job was literally nine days after my college graduation day.
My starting salary at that job blew away my earnings up to that point. In fact, it was higher than the earning level of my parents at the time.
Even better than that, it was pretty clear that this job held some real opportunity for advancement. Although it was a one-year contracted position, I was actively working with a lot of prominent people in my narrow field and I knew that I would be making a ton of connections and building a lot of skills and gaining a lot of experience in that year.
In short, not only was I making solid money right then, I genuinely believed I would be making a lot more money just down the road.
The problem? I spent money under that assumption. I truly believed that I would be earning far more in the future and that, over the course of my adult life, I would make a ton of money, so I spent as though all of those future earnings were a given.
In short, I bought into the “future self” fallacy. I spent in anticipation of future income, not in terms of my real income.
What happened? By 2006, we were in such a financial pickle that we were having difficulty keeping our bills paid, at which point we underwent a serious financial turnaround (which is why Money360 was born, as a tool to help us track our turnaround and share what we learned).
The Assumptions of the ‘Future Self Fallacy’
As I see it, there are three big categories of assumptions that come along with the “future self fallacy.”
First, it assumes your physical, mental, and spiritual health remains great. It assumes you won’t be taken down by a physical illness, by an accident, by a mental health issue, or by other fundamental changes in your personal state. In other words, it assumes that you will personally continue to be able to function at your current job.
Second, it assumes steady employment and progress in your field. You’re going to keep your current job. You’re not going to be affected by the machinations of other people in the workplace. You’re also going to do well enough at your current job to parlay those new resume bullet points into a better job with better pay and benefits, and then do that again, and probably again after that.
Third, it assumes perfect life stability. You don’t get married or get divorced. You don’t have children. If you do have children, they’re all perfectly healthy and don’t have ongoing physical, mental, or emotional problems. You don’t have to care for an ailing parent. You don’t get into a car accident where someone else dies and you’re liable.
Assumptions Meet Reality
Of course, that’s not a realistic view of anyone’s future unless you are extremely lucky.
People change careers all the time and start over when their current career doesn’t work out. People lose their jobs constantly, too, and find themselves forced into career reboots.
People don’t have perfect health, either. They have accidents. They get sick. They suffer from mental illness.
Life constantly intervenes in ways that you don’t expect. There are positive changes, like having a spouse or having kids, but even those changes can derail the career and income plan. Life also deals out a lot of negative changes, as per Murphy’s Law. Things don’t go like you expect them to go.
The truth is that no matter how hard you plan and no matter how hard you believe in it, your bright shiny future has a very good chance of being derailed in some way. And if that bright shiny future gets derailed and you find yourself not making money hand over fist like you believe that you will… well, let’s just say it’s going to be tough.
The ‘Future Self Fallacy’ Meets the Realistic Future
Often, when the “future self fallacy” meets the realistic future, financial disaster happens. That’s essentially what happened to me.
I had these very bright visions of this great future ahead of me, with high wages and lots of opportunities.
In my career, however, I was involved with a three person project with one member of that team essentially choosing not to work. This didn’t turn into complete failure, but it did turn into a project that treaded water for a while as we were missing some key skills from our team that we really needed. I was eventually given a choice of having a long-term job at a pay rate not much higher than I was making or heading off into the wild blue yonder to see what I could get.
At the same time, I got married, had a child, then another child. Rather than taking the risky choice, my life changes more or less dictated that I take the safe route. So, while my income did go up a little, I no longer had the opportunities for huge jumps in wages that I once dreamed of.
In short, I found myself without the big income I was expecting, but also having a lot more expenses than I was expecting.
For years, I spent money with visions of that ultra-bright future, but suddenly that ultra-bright future wasn’t happening and financial reality caught up to me painfully. It took a very difficult financial turnaround to fix things and get things on the right track.
The reality is that spending in anticipation of having a huge income or being rich without big expenses causes you to dig a big financial hole for your future self, one that your future self probably can’t deliver on. If you spend assuming an optimistic future and the more realistic future actually occurs, you’re going to actually end up with a pretty depressing future, because that realistic future is also going to be saddled with the debts from your over-the-top spending.
A Better Approach
A much better approach: use some of what you have now – money, time, energy – to make things better for your “future self.” You might be expecting an ultra-bright future, but in all likelihood you’re going to have a much more realistic future, one where some of your dreams came true, but others were dampened and some burdens you weren’t expecting were thrown on your shoulders.
Right now, you have decisions you can make that will either add to the burdens on the shoulders of that future version of you… or it can subtract from those burdens.
You can choose to spend money wastefully on the little pleasures of the moment… or you can scale back a little and find other ways to have fun and enjoy life.
You can have the expensive car and the expensive apartment or the expensive house… or you can live a little more modestly, still have everything you need, and not saddle your future self with a lot of debt.
The goal is not to live in some kind of self-imposed austerity today. Instead, the goal is to simply tone down the spending today and simultaneously lift the burden off of your future self down the road.
Remember, that future self of yours won’t be as energetic as you are today. That future self may have physical or mental ailments. He or she may be burdened with unexpected life changes or with a career that hasn’t panned out.
Burdening that future self further with poor spending decisions today is going to make for an even bleaker future.
On the other hand, making sensible spending decisions today lightens the load on that future self, making that future brighter no matter what happens in the interim.
‘But What If My Future Is Bright?’
This is a typical response to this type of discussion and there’s an easy answer to it: if it turns out that your future actually does turn out great, then your smart choices right now just multiply the possibilities.
Not only did your career and your life pan out incredibly well, you’re also not saddled with paying back the expenses of your overspending earlier in life. Your options are even broader. You can take big career jumps without worrying much about the money. You can retire early. You can basically do whatever you want.
The world becomes your oyster simply because you didn’t shackle your future self with extra financial burdens.
Here’s the truth: No matter what happens, your “future self” is not going to want to deal with the burden of paying for your unnecessary spending, period. At that point, you will barely even remember the things you spent all that money on. All you’ll face are the bills from it and it will be nothing but a burden.
It’s easy, too. Rather than living an expensive life today, cut back a little bit. Live a modest life, especially in areas you don’t care much about, but it doesn’t have to be an impoverished life. Drive a late model used car instead of the shiny newest model. Live in a more modest apartment rather than the best place you can possibly afford. Go out a little less and have some dinner parties – maybe even potluck dinner parties. Find some hobbies that don’t require you to constantly shell out cash.
You’ll be perfectly happy with your life and your future self will be thrilled with your smart choices and the opportunities that those smart choices gives you. It’s a win-win.