Lessons to Help Your Future Self

October 20, 2021 – Do you ever wish your “current self” could go back in time to have a chat with your “past self?” What would you say? What life lessons might you impart on that “past self” to make the ensuing journey a bit smoother?

It is easy to dismiss this exercise as impossible, or at least impractical. To do so could result in an apocalyptic break in the “space-time continuum”; ask Marty McFly of Back to the Future fame! But what about your “future self?” Research has been done on the psychology of long-term decision-making and how people’s perceptions of the passage of time affect their decisions.

With life expectancy dramatically increasing throughout the world, people must now make choices with a longer future in mind. Many of these decisions, especially financial ones, require making tradeoffs between the present and the future. If you focus on being connected to your “future self,” you can optimize the life that lies ahead! Allow me to offer some principles that could help frame that discussion:

1. Being Rich is Different Than Being Wealthy

You may think that being rich and being wealthy are similar goals worthy of your aspiration. They are not, and trust me, you will want to be known as wealthy over rich. Rich people are fortunate to have money. Wealthy people plan for it. Being rich is a status; being wealthy is a mindset. It is easy to spot the rich. Your neighbor must be rich. He makes an excellent salary, has a huge house, drives a fancy car, sends his children to private schools, takes incredible vacations, etc. You know that person and can tell he’s rich because you can see it. But do you see his bank accounts, financial assets, mortgage, and other debts? History tells us of famous people, and the neighbor next door, who seemed rich, but in reality, were broke.

And then there is Ronald Read, a one-time Vermont-based janitor and gas station attendant who, thanks to intelligent savings and investing habits, had amassed an $8 million fortune when he died at the age of 92. People were shocked when they realized that he had left most of his fortune to the local hospital and library. He had money, but no one thought he was rich. That’s because wealth is what you don’t see. Sure, wealthy people buy fancy stuff like cars, homes, and vacations, but you do not see the material things they could have purchased. You do not see their sizable financial assets, which produce income and are used to buy the most sought-after commodity in life – their time. Deep down, everyone wants to be wealthy. To have the flexibility and financial freedom to live life on your terms is my meaning of wealth. Getting and staying wealthy requires a level of restraint because spending money to prove you are rich will never allow you to attain true wealth!

2. Control What You Can Control

The Greek philosopher Epictetus wrote: “Happiness and freedom begin with a clear understanding of one principle-some things are in our control, and some things are not. The chief task in life is simply this: to identify and separate matters so that I can say clearly to myself which are externals not under my control and which have to do with choices I actually control”. Placing focus on the things you cannot control is an incredible waste of energy. It creates anxiety and stress and prevents you from thinking clearly, which is why it is challenging to change your behavior. If you cannot assess what is in your control, you are, no doubt, wasting many opportunities. When you focus on what you can control, you are authentic and intentional about your attitude, allowing you to “show up” positive, energized, and motivated.

It is tough to change behaviors because emotions triggered by your initial thoughts drive your actions. The key then is to use that part of the brain that processes in a slow, deliberate manner, referred to as Brain 2 in Daniel Kahneman’s “Thinking Fast and Slow,” and ask yourself what am I worried about, is the outcome within my control and what should I do about it? Realize that the brain can run through this “think/emote/act” cycle in a split second. It will take practice, patience, and diligence to alter your behavior. It can be done!

Here are some classic financial situations that clients tend to “worry” about:

1. I will lose my money in the stock market.
2. Who will take care of my children should something happen to me and my spouse?
3. Can I afford to send my children to college?
4. I am afraid of losing my job.

My assessment of these situations, and the guidance I would offer to clients, would be:

1. You cannot control the ups and downs of the stock market. What you can control is ensuring the asset allocation and diversification of the portfolio is aligned with your risk tolerance, time horizon, and notably the expected outcome of your financial plan.
2. You have little control over accidents that occur and an unexpected life-threatening illness. What you can control is having a valid will that appoints a guardian of your choice to support your children.  You can control having adequate insurance to provide for your children in the future, and you can be serious about maintaining a healthy and safe lifestyle.
3. You have little control over the future cost of education and the nature of the education your children may seek, but you can develop an education plan for young children with systematic, tax-efficient savings. You can participate in your children’s academic and extra-curricular activities to optimize the possibility of scholarships and grants. And you can have a conversation about the cost of education to guide the decision on attendance and funding.
4. In my experience, a client’s premonition about job security often has some credence and should be thoroughly investigated. However, we all know the client who acts like “chicken little” despite receiving rave reviews and above-average salary increases. Regardless of the situation, you do have control over your performance on the job.  You do have control over requesting a job transfer or being proactive in improving otherwise tricky relationships. You control the choice of going back to school or developing new skills needed to launch a different new career. Not being laser-focused on attaining the required return on your “human capital” will eventually turn the fear of employment loss into a self-fulfilling prophecy.

3. Change Yourself to Change Others

Having stable, loving relationships is a crucial ingredient to a happy and wealthy life. It is also a desire that often requires a lot of effort.

• Marriages sometimes start with recognizing a “problematic” trait in your partner, with the expectation that you can change it at some future point.
• The parent-child relationship is one of the most joyful and loving in the world, and one that carries the parent’s responsibility to be a role model. As children develop, especially in their teen years, the relationship can become disconnected at best and adversarial at worst.
• At work, the relationships maintained with your boss and co-workers can define your experience and resulting job satisfaction. Too many times, those relationships go awry and cause a significant amount of stress and impact performance.

When discussing these situations with clients, often I hear, “If I can only change him, her, or them, things would be much better.” Or, “they are not listening to me when I tell them what they need to do” followed by, “I’m doing everything I can, and nothing is working.”

These unfortunate situations happen way too often. We have not even discussed the many other relationships that can become an obstacle to achieving that elusive optimal life (extended family, in-laws, friends, and even your financial advisor).

The approach to address these areas of concern takes a page out of the previous section on “Control What You Can Control,” with the external force being all members of the relationship that are not YOU! Simply put, can you control what your spouse, child, or boss does? Can you control their actions, their behaviors, their communication (or lack thereof)?

The answer is NO! You might provide some influence at best, but it rarely provides the stability and trust that define a solid relationship. So, who is left? That’s right: you. And while many feel they lack self-control, you are at the center of the think/emote/act cycle mentioned above. If you frame your thinking with empathy for the other person, trying to feel as they doubt still do not have to agree, you can be sure that the resulting emotions will be different. Curiosity replaces anger, fear turns into hope, and disturbed by transforms into compassion for.

If an empathetic approach alters emotions, there is no telling what actions or behaviors may result. This is the way to change yourself. Having a new perspective on the problem might change the outcome to your satisfaction. At the very least, having a new mindset, with positive emotions and tempered behavior, will either make the situation more palatable or provide the impetus to alter the relationship, both of which are positive outcomes.

4. There Is No Such Thing as A Free Lunch

“Everything has a price, and the key to a lot of things with Money is just figuring out what that price is and being willing to pay it. The problem is that the price of a lot of things is not obvious until you have experienced them firsthand when the bill is overdue.”

“If it sounds too good to be true, it probably is.”

The first quote by Morgan Housel in his book “The Psychology of Money” and the second well-known adage from an unknown author provide extremely sound guidance in the world of money.

Probably the best example of these ideas can be seen from the eyes of an investor. We all expect returns in the stock market. Whether that expectation is high, signaling an aggressive investor, or lower from the conservative investor, we look for a consistent rate of return over time so that we can easily calculate our probability of achieving goals or satisfying our desired ROI. Even though we understand the expectation is an average return and acknowledge that the growth chart would not show an increasing straight line, most investors are not prepared for the volatility exhibited in the capital markets. It is this volatility that explains why investor returns are lower than investment returns. It explains why investors buy with greed and sell with fear.

Like everything else that provides a return, successful investing in the stock market comes with a price, and that price is the volatility, fear, regret, and uncertainty of being invested. The worst part is that you can’t see the cost when dealing with it on a day-to-day basis.

Other examples which provide a similar perspective include:

• Products that limit downside risk but provide guaranteed returns. (Indexed Annuities).
• Portfolios that provide consistent returns over long periods. (Bernie Madoff)
• Transactions that focus on monthly payments and not on the cost or interest rate. (Auto Lease)
• Unrealistic/misleading projection assumptions in product proposals. (Insurance Contracts)
• Financial institutions held to a suitability standard rather than acting as a true fiduciary. (Broker-Dealers)
• Tax-motivated transactions without demonstrable economic benefit. (Step Transaction)
• Verbal or written communication requesting money or information that appeals to your sense of fear or greed. (Unfortunately, too many to list.)

Many other situations require a keen sense of the overall economics to determine the actual price. Do not part with your hard-earned money unless you understand what you are getting into and have at least considered potential unintended consequences.

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