Outsmart Your Own Negative Financial Impulses

I recently wrote about how to avoid the “instant gratification” trap in pursuit of your long-term retirement goals. The basic gist of that article was that the instant gratification of buying that sports car or that new Coach bag, or even simply having more disposable income each month, is a powerful temptation. The short-term pain of financial sacrifice now for the long-term reward of a comfortable retirement can be a difficult trade for many of us. If you are unfamiliar with it, Google “marshmallow experiment” for an illustration.

Yet, there are those who are wired to focus on the long-term who seem to have little difficulty focusing on the long-term future. Some clinical research suggests that it’s not necessarily faulty brain wiring at work, but a simpler cause: impatience. Would you rather have $1,000 today, or $2,000 in one year? Many would take the money today.

An interesting study out of Washington University (St. Louis) found that more patient people had increased neural activity in the region of the brain that helps you think about the future. The patient participants devoted more brain energy to the benefits of receiving their reward later. If you’re in the "patient" category, setting aside what you need now for a comfortable retirement is probably not an issue. For the impulsive group, it would be easy to throw up your hands and say, “Well, that’s just the way I’m wired.” But doing that solves nothing, and may leave you in a state of regret both leading up to and during your retirement, when your financial resources may be limited.

Two relatively simple steps may help you outsmart your own negative financial impulses:

1. Actively envision your future self, enjoying your retirement.

2. Create an incremental reward system that provides some—but not all—gratification now.

Envisioning a comfortable retirement sounds like a no-brainer, but it may be harder than you think for some. Today’s rewards can seem much more close, tangible, and attainable. But when faced with a now-or-later decision, you can make the later rewards more tangible by imaging the actual activities, hobbies, travel, and other rewards you’ll pursue then. While those rewards won’t be made any more immediate, they will likely become more substantial if they become more specific. Setting some retirement goals and envisioning your retirement future, then, is an important part of this step; for it to work, the future rewards should be as specific and detailed as possible.

Creating an incremental reward system gives the brain that little bit of “ahhhh” that it craves now. If the sacrifice is that long-anticipated week-long golf trip to Hawaii, plan instead on a golf weekend closer to home. If today’s sacrifice is a 3-day weekend at the spa, plan instead on a 90-minute massage and facial. The incremental rewards don’t have to be tangible, either. I made the case in the earlier column, and I think it’s worth repeating here, that there is a clear mental reward associated with just doing what you know you need to do. Focusing on that sense of accomplishment can be its own reward, or it can be one component of it while you engage in the activity or purchase associated with your incremental reward system.