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.