To be honest, it’s hard to encourage someone to save for retirement, especially for people my age. I’m 23, retirement is such a far off goal that I understand why many people my age don’t even have this anywhere near their radar. Why would I save a $100 this week for something that may or may not happen 30+ years from now? I could use the very same $100 on things I want to do right now.

For many people, saving money is hard. We’re tempted by so many things and the fear of missing out (FOMO) on experiences today is hard. I open Instagram and I see all my friends doing all these fun things, how could I not want to be part of that. So let’s try to explain the way our brain thinks.

My Brain is Buns at Valuing things in the Future

Have you ever been asked the question of whether you would rather have $100 right now or an even greater amount in a later time?

Many finance oriented people will try to look at this decision based on interest rates and something called Net Present Value (NPV). Can you make more money putting the money in an investment account right now, or is the value at a later time greater than the interest you would make? Yes, that’s a great way to think about investment decisions, but to explain my point a little better lets set a few parameters with the money that relates to most people’s lives a little more. I’m 99.99% sure people don’t use the compound interest rate formula every time they make a decision.

Let’s say that you make just enough money, which is about 60% of Americans who live paycheck to paycheck. Most of your money is spent on the basics and you have very little extra spending money for yourself or your family. You somehow win some unexpected money and you are given 2 choices: Either get $100 right now or $200 in one year. You think about what’s currently happening in your life, and you remember that your favorite band is going to be in town next week and tickets are $100, they haven’t been in town for 5 years. You follow the rule of not spending money you don’t have and know that you could only see the concert if you took the $100 right now. What would you do? Personally, I would take the $100 right now, and I think most people would too. It’s my favorite band, I haven’t seen them in 5 years and who knows when they’ll be back again. I have no idea what will be happening one year from now and I can already feel how happy I would be to go see that concert. That extra $100 is worth giving up to go to this concert.

Here’s another question: what value would you have to receive in one year for you to give up seeing your favorite band right now? $300? $500? $1,000? Ask yourself, which valuation temps you to give up that pleasure that seems so tangible to you for a value in the distant future. I have a hard time asking myself this question because I can’t put an exact value of how much money it would take to flip me over. However, if you told me I would get $1,000 in a year I would probably give up the $100, in fact, I’ll probably do it for a lower amount, but it’s hard to pinpoint which amount. Would I take the $100 for $492, but wait a year if you offered me $493? I don’t know where I cross over.

But what if I told you that instead of waiting for a year for the $100, I would give you $200 in two weeks? Your decision may not change, but it sure is more tempting to wait just 2 weeks for double the amount of money than it is to wait a whole year. You definitely would spend more time making the decision than you did if the timeframe was one year. So what gives?

It’s called Intertemporal Discounting.

Here’s a paper by Yale professors that use a lot of equations and information to try and explain this phenomenon.

To save you from reading all this here’s the definition in essence: we don’t value things in the future as much as we value things today. The further things are down the line the less we value it.

In your head that $200 in a year may feel like $70 today, but if you change the time frame to two weeks your brain starts valuing it closer to $200 today. We are bad at thinking about future benefits. I mean think about it, for most of mankind’s history, we worried more about putting food in our bellies and not dying from starvation today rather than thinking about the future. In fact, some people around the world still need to worry about fulfilling basic needs in the present in order to survive and simply don’t have the luxury to think about the future. It’s ingrained in us to value things more today than it is to value the future because for so much of our history the future was such a big uncertainty. If you’re really hungry right now and someone says you can have a slice of pizza right now or have 2 slices tomorrow, your body and brain will scream at you to take that slice right now.

Cool, cool, so basically you’ve given me a scientific reason to make me not feel so bad that I don’t save money. Thanks, sounds like a great excuse to justify all my impulse decisions with money.


Yesterday is history, tomorrow is a mystery, but today is a gift. That is why it is called the present

Master Oogway, Kung Fu Panda

If Oogway, the master of Kung Fu, follows this mantra how could I not?

The flaw to the argument: the future isn’t as uncertain anymore

So yeah, thanks to technology, science, and all other improvements in the way people live. The average life expectancy for people in the United States is now 79 years. If you’re 23 today, you have a 99.87% chance of making it to your 24th birthday according to the CDC. So even if I used basic statistics of Expected Value, a predicted value of a variable, calculated as the sum of all possible values each multiplied by the probability of its occurrence, the expected value of that $200 in the one year is $199.74 (ignore inflation, NPV, risk adjustments, and other financial terms for the sake of making a point). Only a 26 cent difference, but in our heads, it could be miles apart. A date one year from now has no certainty to it, we don’t know what’s going on at that time and we have a hard time placing value on that $200. Yes, it’s $200 but you can’t gauge what you’ll be spending it on. That concert next week isn’t staring you right in the face with the $100 price tag, you have no idea what you would use the $200 for in 365 days. Will there be another concert at that time? Will all your friends be going? Is there going to be another restaurant you and your significant other have been dying to go to? Probably, but you have no idea which! You have a hard time assigning a value that has so many mysteries to it.

So while we wait for our intrinsic processes to catch up to our current living standards, how do we get ourselves to make financial decisions that make sense?

Save Money with Small Goals and Give Details to Your Future Purchases

Look I’ve already admitted that saving for retirement is hard, so if it’s too difficult, start saving for something else. Save for something tangible that is in the near term, but not too near term. Some great ideas could be a big purchase on something expensive like a new laptop, TV, bike, or even a big vacation, anything that you’ve been eyeing that you know you wouldn’t be able to impulsively purchase without saving up little by little every month.

One of my goals is to take my little brother to Europe this summer to celebrate his high school graduation, and I save about $200 every month to achieve this. My goal is to save about $2,000 for this trip. It takes 10 months, but unlike thinking about retirement, I can put a value on this trip quite easily. I know that by not spending that $200 this month, this trip will give me so much more joy.

The Power of Details

Better yet, start putting traits and details to things that you want, it will start to feel much more tangible. Saying that you will save $2,000 to go on a trip is one thing. But, actively planning a trip one year from now with concrete details gives you so much more drive to save for it. Once you know that you have a plan to stop at London, then go to Paris and then to Italy to see the Vatican, the goal seems so real. Looking up specifics things to do in each place powers you even more because you start to concretely imagine yourself being there. Check flight paths and prices! Look up hotels you can stay at. Look up famous restaurants you want to try.

Don’t just tell yourself you want to save money for a new bike. Instead, look up the exact bike you want, the features it comes with, and imagine yourself using that bike. I promise you that you will be so much more motivated to save for it. Details! Details! Details!

You see, every time I want to make a big purchase, this is how I save for it. In fact, I have a lot of things that I save up for because, slowly but surely, you realize that saving gives you access to things you usually can’t afford in the spur of the moment. You’ll never be able to put that downpayment on that house. That wedding of your dreams won’t be possible if you don’t save. That restaurant you want to open can’t be opened if you have no money to open it. It may be hard to put real values on these events because your brain has a hard time understanding your motivation. So make it understand. Make it as concrete as possible and strive for that goal.

Call to Action

Go out there and start writing your goals down and what you want to save for, the more details the better! If something looks too daunting or looks like it’ll take a lot of time, start with something small. Prove to yourself that you can save little by little for something big. After your first victory, you’ll realize something. You can do it. You’ll feel the sweet satisfaction of accomplishing something you didn’t think you could before.

Inherently, intertemporal discounting may be affecting us, but it doesn’t mean that you can’t train yourself to counteract its effects. Everybody can start saving, no matter how small the amount, the question is whether or not you start?

Reading tips and tricks to motivate you is one thing, actually doing it and following through is another. Take action.

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  1. […] to almost 1/3rd of the 5-year time frame. Give it even more time, and the numbers start looking more and more manageable. For me, $15 a day is giving up my lunch here in NYC and packing my own, and $6 is the coffee and […]

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