The Balance between your 2 Selves

Amar Pandit , CFA , CFP

Most investors including many advisors have a misguided notion of what saving, spending, and investing (or rather what to do with your money) is all about. I hear many professional advisors say “Don’t spend on this. Don’t Spend on that. Delay Gratification. One qualified professional wrote “Don’t buy a Car. I do not need any. I can call Uber or Ola”. Then she wrote a long list of points including calculations to prove why it does not make sense to buy a car. Another international blogger wrote “Imagine the money you spend on a Latte and save that. You can become a millionaire with that”. In short, all of them are talking about a Delayed Gratification. They have this perspective that the only way to live your life is to not spend “now” on things they consider wasteful and save everything you can for your future.

On the other hand, most people believe in Instant Gratification. “I want this thing now whether it be the latest iPhone or the shoe.” We want everything now and it seems we cannot get enough. This gang lives for today and they want Instant Gratification. There is a third category. These are folks who manage to strike a balance between these 2 extremes and do the wise thing. However, even some of these folks end up feeling confused and feel guilty at times listening to the smart heads of the financial world. They have these questions such as “Am I doing the right thing? Am I spending too much?”.  I felt it was thus very important to give a perspective to the folks who have already got it right. They would do well to ignore the one-sided (naïve) view of some of these experts. Now back to the topic.

All of us have two selves. We have a Present Self, and we have a Future Self. Our Present Self wants us to spend now (enjoy) and our Future Self wants us to save and invest so that our Future Self can spend later. However, research shows that our Future Self is like a stranger to us. We do not even recognize the person we are going to be 20 years down the line. He or She is a stranger to us. Literally a Stranger. Imagine your Future Self 20 years later. Can you imagine that person? Can you feel for that person? Do this exercise for a couple of minutes and see if you can visualize and feel for that person. I bet you will not be able to because that Future Self is literally a stranger. Who do you think invests for a Stranger? Do you?

This is the problem for most people then who cannot save for their future self. If we are unable to identify with a stranger, then the only person I should be taking care of is me (my needs and my wants). Thus, we start a cycle of instant gratification that makes us feel great today and we do not even feel what our Future Self must be feeling if they see what we are doing with our money today. It is ironic that when we meet people today, many say “I wish we had met 20 years back”. This is one of the biggest issues when it comes to dealing with money.

The other biggest issue lies at the other end of the spectrum. There are people who have been told only to save for their Future Self. Many of them have saved and invested but have not lived the life they wanted to live. What do I mean by that? I mean that they want to do things with their money but cannot or do not know how. Many do not even know if they can afford to do what they want despite accumulating significant wealth. So, they keep saving for the elusive future self and one day they are gone.

Author Paul Armson says “Life is not a Rehearsal. You might not get a Second Chance”. I will explain this with an example. One of our clients (name changed to John) has saved very well. We were having a conversation about vacations when he said, “I want to go to Alaska, but I am waiting for the kids to grow and then go”. I told him “You can go again then. You can afford to take a vacation now; you have saved well; why not go now when you can. The kids will have a great time on the cruise and so will you. You can go again if you love it when they grow up.” There are people like John who can afford to do the things they can with their money (and they want to) but they do not end up doing it. I am not saying you should do it if you cannot afford it. I am also not saying that if you can afford it, you must do it even if you do not want to do it. The point here is “Money is a means to an end. If you have enough and you want to do something, Do it now when you can. John got the point I was trying to make and was planning to cruise this year. Sadly, COVID-19 shelved all plans. I am happy to see the kind of clarity that he has now about his financial life”.

The key then when it comes to saving, spending, and investing is to strike a balance between the needs (and wants) of your Present Self and your Future Self. One simple way that will save you countless hours, headaches and most importantly will be easy to implement is to Have a Savings Budget. Do not Waste time on an Expenses Budget irrespective of the income you are earning (whether it is Rs.20000 per month or Rs.2 Lakh per month). Save a Fixed percentage every month and spend the rest guilt free. Even a person who is earning Rs.20000 a month can save Rs.1000 per month. If you cannot save when you are earning Rs.20000 per month, trust me you will not be able to when you are earning Rs. 2 Lakh a month too.” Start with a small amount and gradually increase it. You must keep something aside for that Stranger NOW and every month. Once you have figured out how much is enough for your Future Self and you are doing it diligently, please spend on things you want to. If you want to buy that car today or drink that Latte, Just Do it.

Do not allow others to judge you on your choices. Finally, if you have saved enough, live the life you have imagined with your money. There is no this way or that way. There is just your way and you got to find and live that way. Period.