Photo by Frank Vessia on Unsplash
Goal visualization is a powerful tool. Formula one drivers visualize every turn of a track before a practice or a race. They even visualize wheel-to-wheel racing with their fiercest opponents. Most elite athletes use visualization. From downhill skiers to runners. Marathoner Meb Keflezheigi visualizes his races in difficult conditions to help get the most out of himself. The same concept applies to life. Arnold Schwarzenegger says the first rule of success is to have a vision for where you are going.
We can all benefit from some visualization, especially when making financial decisions. Recent research shows that we can improve financial decision making by making a connection between our current self and our future self, or, in Jerry Seinfield’s joke, between night guy and morning guy.
Connect to your future self
Achieving financial goals requires work, sacrifice, and delayed gratification. With no picture of what road to success looks like we can’t evaluate the benefits from delayed gratification, which leads to suboptimal decision making today. In a series of experiments, researchers at Stanford, NYU, and the London Business School find that connecting your current self with your future self can make people save more for retirement.
How connected are you to morning guy?
In one experiment, subjects were asked to choose how connected they thought they were relative to their future self, using something like the following figure. They measured connectedness in a number of ways, including similarity to, liking, and caring for your future self.
Source: “Don’t stop thinking about tomorrow: Individual differences in future self-continuity account for saving”, Ersner-Hershfield et al., Judgment and Decision Making, Vol. 4, No. 4, June 2009, pp. 280–286.
The actual experiment was based on a seven-point scale, rather than the three-point scale shown here, but you get the idea. After measuring each subject’s self-continuity level, they ran an experiment that measured their ability to delay gratification (their subjective discount rate) and measured each subject’s net worth. They found that subjects with a greater connection with their future self had a greater ability to delay gratification and accumulated greater assets. Check the figure again. How connected are you to your future self?
Night guy meets morning guy
In another set of experiments, some subjects were given virtual reality (VR) equipment that allowed them to interact with older versions of themselves. It was as if a participant could see themselves in front of a large mirror, only the person in the mirror was of an older version of themselves. The goal of this approach was to create a simple connection with our future self by helping the brain to imagine it.
After the interaction, participants were asked to allocate a $1,000 windfall to current spending and retirement saving. Other subjects were asked to allocate the windfall without first interacting with their future self. The participants that interacted with their virtual future selves had an increased tendency to delay gratification and increased allocation to retirement savings.
The importance of this and other experiments that the researchers ran is that they help establish a causal relationship. They show that you can make better financial decisions by creating a connection between your current and future self.
The impact of age
The shorter your time horizon the more likely you are to have a connection with your future self. As we age, we naturally tend to evaluate the direction of our lives, like when we decide to start a family or get closer to retirement. However, the researchers found that the association between self-continuity and savings remained significant even after statistically controlling for age. Creating a vision for your future self doesn’t just help the young or extreme cases, it can help everyone.
Make a plan
The best way to create that connection is to make a values-based financial plan. The process of creating your plan is all about creating a connection between your current self and your future self. Use your values and priorities to set future life goals that are meaningful to you, and create actions that help you get closer to your goals, starting today. We have created a simple, one-page process to create your first plan here. By committing to this simple process in a regular way, you will stay connected with your future self and make good money decisions over time. As the famous Fleetwood Mac’s song says “Don’t stop, thinking about tomorrow!” Make a plan today.
Until Next Time!
