By Mikelann Valterra, MA, AFC

In my recent article, Taking care of the future you. Who is she? I shared how difficult it is for our brains to imagine ourselves in the future. It is as if that future person is not us. It’s someone else. This makes it hard for us to save money for “her”. Getting to know her—imagine who you will be in the future—helps us save money for her.

But the rabbit hole goes deeper than this. We struggle imagining ourselves in the future. True. But when we do imagine ourselves in the future, we tend to assume she will be like the present us. She will want the same things, do the same things, have the same goals and desires. In effect, we think we won’t really change that much from who we are right now.

But think about how much you HAVE changed. When I think of the Mikelann of 35, a young married wife and mother, I had not yet discovered creating art. I couldn’t imagine getting divorced. I had not yet started my meditation practice that would impact so much in my life. I see all of this now, looking backward. I have changed a lot. We all have. And I will continue to change in the future…

The “End of History Illusion” is what psychologists call the tendency for most people to be keenly aware of how much they’ve changed in the past, but to underestimate how much their personalities, goals, and desires are likely to change in the future.

Think about that.

People do believe that they have experienced significant personal growth and changes in taste up to the present moment, but they believe they will not substantially grow or mature in the future.

In short– we think that who we are right now is who we will be for the rest of our lives.

I believe it’s called “The end of history illusion” because we think we have reached the end of our “history”. It is as if I’ve reached the apex of “Mikelann-ness”. You are at the apex of YOU. You are fully cooked. You are done becoming and have arrived at who you truly are. But it is completely false. Tastes change. Dreams change. Goals change. We encounter new people and new ideas. We DO continue growing and changing in the future.

So, this impacts financial behavior and money management in many ways. For example, we assume that if we like our job now, we will still like it in the future. Perhaps we feel we have enough energy now, so we believe that of course we will have enough energy in 5 or ten years. Therefore, we say we will wait until 70 to take social security, but we end up changing our mind because at 62 we are very tired and sick of working…

The bottom line is that if we can’t envision how we will continue to grow and change, we won’t give our future self enough resources for the new things she will need, value or desire. Why? Because the present self doesn’t feel / envision these things.

This is why saving money, even when you don’t know what it is for, is so key.  This keeps your options open for what you may want in the future, even though right now you don’t want “it”. “It” may not exist for you right now.

At 45 I was not a dancer.  I could never have imagined that only ten years in my future, I would be a dancer, competing nationally, and wanting to use all my discretionary money for tango related training and travel.  Saving money for future desires not yet born is key.

Here is a more sophisticated use of this idea. My new husband and I were debating putting down more money each month on a house payment, so the mortgage would be paid off early. I bet my future self would love to have more rental income and no mortgage. But then I reflected. Will the future Mikelann of 15 years want to keep the house, or will she sell it? If we instead invested this money into a brokerage account each month, then in 15 years I would have more options. We could put this money down on the mortgage in a lump sum. Yes. OR perhaps I will want to do something different with the money.

Sometimes financial decisions are not just about math and the best investment return.

While it is easy to look back and see the changes in our past, being open to changes in the future is more exciting if you have savings and financial flexibility. Money is ultimately about freedom. Even if you are not sure how you will use that freedom.

If you want to save more, you may have to get a handle on “lifestyle creep” so you have more money to save. But what truly causes lifestyle creep—spending more when we earn more– and how can you combat it and not feel deprived? Stay tuned for the answers to this in my next newsletter.

By Mikelann Valterra

I’ve asked clients over the years to envision themselves in twenty years. What about you? Can you do this? The truth is, we struggle with imaging ourselves in the future.  But the ability to envision ourselves in the future has the single greatest impact on our financial behavior and in particular our ability to save. Herein lies a big problem—did you know that the part of the brain you use to think about yourself is a different part of the brain than you use to think about other people? AND– when you think about who you will be in the future, be it five years or twenty, the part of the brain that activates is the part that thinks about other people.

It is as if you are thinking about someone else. Not you.

Because we struggle with seeing ourselves in the future, we struggle with taking care of the person we will be in the future.

Our brains tell us that it is not us, it is someone else. So why sacrifice for this “other” person? Saving money for retirement or future dreams and goals involves spending less money now. Boring! And I would rather buy the shoes and go on vacation. Why spend less so I can save more money for “her”?

So, feeling good about saving money first involves spending time getting to know your future self.  But how can you get to know this person?

Try this exercise: Write out what an ideal day may look like for you in twenty years. Where do you live? Who is around you? What do you hear and see? What are you wearing? Spend time describing the environment that you may enjoy being in, in the future. Then write about what the future you may be doing. What are you hoping you/she will have time for?

Some financial therapists recommend using aging software to get a picture of what you may look like in the future, so you can really befriend your future self. Be careful with this, as this is helpful to some and upsetting to others. If it might motivate you—connect you better to her– then do it.

Another exercise: write your future self a letter and ask her for advice about money. Then have her write a letter back to you. What do you imagine she may share or ask you to do, or stop doing, that would take better care of her? This is about growing and nurturing this relationship with the future you. You can talk with her.

The other issue with thinking about our future selves is that you don’t always know what you are saving for.  The future, by definition, is unwritten. We are saving for things that haven’t happened yet. What emergency might happen that will require you/her to use your/her safety net savings? (So that you protect your investments.) What lifestyle will you/she want to have in the future that is different now? Savings gives you and her options.

If you do not take care of your future self, who will? Your future you will want freedom. Savings protects her freedom.

Consider brainstorming a list of possible actions you could take that would help take better care of the future you.

Then go back and pick one idea to implement. Here are some ideas that could help:

• Increase your IRA/ 401k contributions by 3%
• Pay down your debt so she does not have any debt payments
• Beef up your safety net so she can use it and avoid tapping her investments at the wrong time (in case another pandemic affects her…)
• Hire a money coach to learn how to handle money (I couldn’t resist adding that one!)
• Take action to provide her future rental income
• Increase your mortgage payment to help her be mortgage free sooner.

And yes, this same idea applies to health. My future self wants me to floss every day, since she hates dental procedures and wants me to do more to protect her from dental problems. My future self also wants me to continue building a strong core, so she is back-pain free. I go to the gym for her, as well as for me.

Get to know and love your future self. She is counting on you. You are in the best position to take care of her. Love her up!

(Email me back with your ideas of possible things you can do for her. I would love to see more ideas.)

And in fact, we struggle so much with seeing ourselves in the future that when we finally manage to envision her, we assume she is not that different from who we are today. Is this true? More on that in my next newsletter.

By Mikelann Valterra

Whew! Recently, I attended the Financial Therapy Association conference in San Diego.  What IS financial therapy, you ask? It’s a process that uses both therapy skills and financial knowledge to help people achieve not just financial health but higher overall wellbeing.  Money is never just about the numbers, is it. How we feel about it, and how we use it to create a life we love, is a huge subject. And it got me thinking about financial stress vs. financial anxiety.  Yes, there is a difference.

Do you have financial stress or financial anxiety?

People who come to see me often mention being tired of money stress and not feeling empowered in their personal finances. But often when we dive in, they are experiencing financial anxiety. So, what is the difference?

Financial stress is usually caused by an external trigger, though it could be short term (being hit with a huge car bill) or long term (dealing with divorce or the effect of the pandemic on their business.)  But when a stressful “event” happens, this causes a lot of financial stress. Sometimes the event is so big that it takes a while to see it as the cause of financial stress. Sometimes it is very obvious. But financial stress generally means we fear our inflow is not covering our outflow—big or small, now or in the future.

And financial stress causes all the mental and physical symptoms that general stress does: digestive troubles, difficulty sleeping, irritability, tension in relationships etc.

Financial anxiety is something different. It is more diffuse and on-going. Your money worries feel more persistent, even when there isn’t a specific stressor in front of you.

So, if you feel stress whenever you think about money, then you are likely suffering from financial anxiety. You can’t always put your finger on what is bothering you, but you feel a general sense of unease whenever you think about your finances. You can’t point to a single obvious trigger. You may live as if waiting for something bad to happen. If feels like walking around with a pit in your stomach. Or perhaps the feeling of unease comes over you when you think about the future.

The difference between financial stress and financial anxiety is important. For one thing, one is talked about, and one is not. People are more likely to share their financial stress with a loved one or a trusted friend. But when your feeling of “stress” drags on, it is something else. It is anxiety. And this is less talked about but can be more impactful.

Unfortunately, people often get used to financial anxiety, as if it is the air they breathe. They assume money is always “stressful”, though different things may bring it to the fore (like paying bills or buying a house.) But the reality is that it is always there in the background.

It is financial anxiety that blocks us from thinking about the future and is also the cause of financial indecision. It tends to fuel the money fog that keeps people vague about their money.

Financial anxiety saps your energy. It becomes hard to plan, or dream, when you suffer from financial anxiety. It all feels pointless, so why dream anyways?

The way out of financial anxiety is a two-pronged approach.

First, to feel more secure around money, my top recommendation is to design a personalized spending plan – a.k.a. budget– so you can clearly see your income and spending and then decide where YOU want your money to go.

Creating a nourishing spending plan that is in alignment with your values and what truly gives you satisfaction, while including a plan for savings, is a major stress reliever. When you automate some of your savings, anxiety lifts even more. Seeing that your income and outgo are balanced in both the small and big picture is a tremendously good feeling.

Second, it’s important to process where your feelings of financial unease come from. Exploring your money story can be hugely helpful, as so many beliefs we have about money are not conscious. They operate in the background creating various feelings (like anxiety!) Sometimes the roots go all the back to childhood. You may have been raised with parents who fought about money, and hearing this conflict as a young child created many feelings of fear and distrust of money.

And perhaps as a young adult, you went through huge financial stress when money was so tight you feared not having enough money for rent. These fears of our young adulthood often lurk in the background long after we have the specific fears of being short at the end of the month. Processing them with your therapist, financial therapist or money coach can be hugely beneficial in helping you feel better about money in general and alleviating long-standing financial anxiety.

So while we all go through periods of financial stress (life happens!) we do not need to suffer from financial anxiety. Financial anxiety can be overcome so you breathe freely, are excited about the future, and feel great about your money life.