The Single Biggest Money Mistake People Make

Let’s just cut right to the chase. The single biggest money mistake that people make is that they put too much emphasis on the short term and not enough on the long term.

Whenever you splurge, you’re choosing the short term over the long term.

Whenever you buy something you don’t really need, you’re choosing the short term over the long term.

Whenever you kick back to watch a few hours of television, you’re choosing the short term over the long term.

Whenever you buy the cheap and energy inefficient light bulbs, you’re choosing the short term over the long term.

Don’t get me wrong – choosing the short term over the long term is a good thing some of the time. Little splurges and relaxing days are an enjoyable part of life.

The problem is that people choose the short term over the long term too often.

They choose not to contribute to retirement – long term – because it will drain a little out of their paycheck – short term.

Rather than making splurges an occasional thing and banking some money each week – long term – they make splurges a daily thing and barely save anything at all – short term.

Instead of making their future easier by keeping their credit card in their pocket – long term – they use the plastic over and over under the belief that their “future self” will pay for it – short term.

All of those mistakes – and many more – boil down to the fact that people choose the short term over the long term far more often than they should if they want a healthy financial future.

Why do people do this, though? The reason’s easy – we humans are usually thinking in the short term. We’re focused on what we need or want to do today or this week rather than what we need or want to do in twenty years. It’s just human nature, derived from when our lives were naturally focused on the short term on the ancestral savannah.

That’s not how our lives work today. Now that average life expectancies are reaching well into the eighties and our lives are relatively stable in terms of putting food on our plates, we have to start thinking about our long term future more than we used to.

I’m as guilty of this failing as anyone. I’m often tempted to splurge right now, even though I know the splurge will cost me in the long run. I’m often tempted to be lazy right now, even though I know I’m just skipping work that I’ll eventually have to do later on. When I do those things, it’s because I’m listening to my short-term brain, not my long-term brain, and that’s often a mistake.

So, the real question is how can we convince a short-term brain to think about things in the long term? Here are a few answers.

Actively Think About the Future

In our busy lives, it’s really easy to just not think about the future at all. I know that my days are often overstuffed with things that need to get done.

The problem is that if you don’t spend much time thinking about the future, it becomes irrelevant to you. You don’t make decisions with the future in mind. Your decisions become wholly based on the present.

Rather than looking for long-term solutions to your problems, you start throwing your money at solving the problem in the short term and into short-term comforts and pleasures. If the future is the last thing on your mind, signing up for retirement seems like a giant waste of money.

That’s a mental trap that you simply can’t allow to exist in your life. You have to think about the future. After all, the future that you don’t want to think about becomes your present and completely shapes your life.

Spend some time each day actively thinking about what is coming down the road for you. Use your commute to do it, for example. Don’t just think in vague terms, either. Think about what you want your life to be like in five years, as specifically as possible. How about ten years from now? Twenty?

Now that you have that picture, start thinking about your life today. What can you do today to start making that picture become a reality?

For me, visualizing this helps a lot. I like to find pictures that represent what I want out of the future and put them in places where I’ll see them regularly. Right now, the picture on my phone and on my computer is of a home in the country that I’d like to live in someday. It’s an old farmhouse with a big open porch and a big barn in the back, with a fair amount of open space and some trees in the distance. That, to me, looks like heaven.

Right now, you have more time than you’ll ever have again in your life. You also have more good years of health ahead of you than you’ll ever have again in your life. If you wait – if you put it off – you lose some of that time. You lose some of those years of good health.

Right now is the best moment in your life to start taking care of your future.

Automate the Decisions

It is really easy to get excited about your future for a while, but then see it start to fade away under the relentless grind of today. The big initiatives you thought you’d start begin to fall back because there’s so much stuff to do and so many things to distract you right now.

That’s where automation becomes useful. If you can automate those steps toward that better future without having to think about them, then it becomes a whole lot easier to make progress happen.

For example, if you go in today and sign up for your company’s retirement plan and designate that 10% of your pay goes toward retirement, you don’t have to think about it again in the future. It just happens, and with each and every paycheck you take a solid step toward the future.

If you sign up for an investment account and designate that $100 per week (or whatever amount you choose) is transferred to that investment account, you can walk away and your steps toward a brighter future will just happen automatically.

If you take the time to do some one-shot frugal steps, like air sealing your home or installing LED light bulbs everywhere, the savings will be a constant in your life. Your energy bill will be permanently lower without any further action from you.

The key is to set up these automatic decisions now while the future is in the front of your mind so that you don’t have to decide or talk yourself out of them later when the future isn’t at the front of your mind.

Make Fun Choices With Less Negative Impact on the Future

Often, people think that whenever they choose to do things that are good for the long term, they have to make big sacrifices in the short term. They turn it into an either-or choice, where the short term is fun and good and the long term is boring and bad. When you do that, making the short term choice becomes really easy.

In reality, though, you can make a lot of fun choices in the short term that don’t hurt the long term at all.

Fill your weekends with free fun things that you enjoy doing, like geocaching or walking in the woods or reading a book from the library or watching a DVD from the library. This is even better if the things you choose to do actually enrich or improve you in some way. For example, if you take a long walk in the woods, it can improve your health.

Choose social events that allow you to interact with people that can help your career or provide you with good ideas. Try to find social events that are going to attract people that are going to help you get to where you want to go, then just go and enjoy the activity, whatever it might be.

Rather than going out with friends or just inviting them over to do nothing in particular, organize events that help all of you for the future. Have a “meal prep party,” where everyone brings a cooler and you all work together to make some meals you can keep in the freezer. This not only makes the cost of each meal a lot lower, it also makes them more convenient on busy evenings.

What you’ll find is that if you choose fun things in the present that don’t have a negative impact on your future, those things feel extra good. They’re fun in the moment, plus you don’t look back on them later with a twinge of regret. It’s just good all around.

Final Thoughts

It’s hard to make the transition to not putting the short term ahead of the long term. After all, our brains are wired to do just that.

However, when you find ways to make it happen, it ends up being a very good thing. As your life moves forward, you begin to feel more and more secure about the future. You begin to feel like you’re headed toward something great rather than just an endless cycle of work that ends in near-poverty.

It’s the single biggest mistake people make, at least in my opinion. Don’t let it be your mistake.

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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