If you think of animals, any decision they make has an immediate impact on them. They are always thinking about what to eat, where to sleep or how to avoid predators. They are always focussed on the present or the very near future.
This is very similar to our earliest ancestors, who were around over a hundred thousand years ago. They too only had to worry about their immediate future such as shelter and food. There was obviously no planning for retirement back then!
Actions resulting in immediate outcomes, is known as an immediate-return environment.
Only in the last 500 years or so have things changed for humans. We now live in a delayed-return environment, where we are required to consider our futures and how our decisions now affect them. Smoking now could lead to health problems later, not eating well could do the same.
With bad habits, the immediate outcome feels good while the ultimate outcome feels bad. With good habits, it’s the reverse, the ultimate outcome feels good but the immediate outcome is not enjoyable.
Unfortunately, while our world has changed, human nature has stayed the same, we are still built to prefer quick payoffs rather than long-term ones. This is why it is so difficult to eat healthily, exercise regularly or save money. All of these things have great long-term benefits but are pretty boring in the short term.
This has given rise to companies like Afterpay who have built a business that takes advantage of this basic human nature, while marketing it as a budgeting tool. It’s the same with credit cards and personal loans.
Because our brains prioritise the present moment, you cannot rely on good intentions and goals alone, it’s just too easy to spend money these days. You have to create good habits and systems in order to achieve your long-term goals.
Here are two ways to improve your financial habits:
- Create an immediate reward by naming your savings accounts and have multiple, if need be. If you create a savings account named “family holiday”, every time you don’t spend money on takeout, transfer what you would have spent to this account. You will feel instantly rewarded doing this, because you have made some progress towards a specific thing that is meaningful to you. Finding a way to immediately reward good habits will help you stick to them and feel motivated along the way.
- Automate your savings and investment strategies. Instead of manually transferring to your savings or investment accounts each month, create scheduled transfers or debit orders to these. Habits are formed by doing something many times over, so the less opportunity there is to avoid something, the better. Think about it, if you want to save $500pm, by manually doing the transfer each month, it is easy to one month think “Ah, I will just do $400 this month and use $100 for those jeans I saw yesterday”. $100 may not seem like a big deal but what is a big deal, is that you have broken the habit and once you do that, it is easy to repeat.
So, stay mindful of our human defaults and be more conscious with how you are spending. Money is there to be spent but the problem is that we are often spending our money on things that bring no value to our lives while we are taking away from the things we really value.
The only people who benefit from Atferpay are Afterpay themselves. Spending money mindlessly is to your finances, what a cigarette is to your health.
(Ref: Atomic Habits – James Clear)
