We’re generally pretty bad at thinking ahead. It’s human nature to care more about our immediate satisfaction and happiness than making sacrifices for a benefit at some vague point in the distant future. This means we are likely to delay more difficult choices which we know we should probably be thinking about, but aren’t ready to do just yet.
I was recently doing some reading on why this is, and found that one of the key drivers of short termism is the fact you find it difficult to imagine what your future self will want. The longer the period in question, the more difficult it is to identify with your future self. If you’re trying to imagine what you might want to have for lunch this Friday, you probably have a pretty good idea. But trying to imagine what you’ll want to have for lunch 20 years from today you find it more difficult.
This is why Western countries have such high incidences of obesity; we suck at prioritising what our future selves want over what we want now. Being more health conscious will make your future self healthier, happier, and probably sexier, but mean you have to put in the hours at the gym, sacrifice leisure time, and say no to some stuff. You don’t want to give up the evening on the couch binge watching Netflix and eating unhealthy food to go to the gym or start a night course that will increase your salary at some undetermined point in the future.
Building your savings, investments and assets will make your future self more financially secure and can deliver options for a better lifestyle many years from now, potentially even allowing you to retire early. But this involves putting in the work now to save money and saying no to that weekend away with your partner or mates to your favourite getaway spot, turning down that extra special dinner at the hottest new spot in town, or buying that extra pimp pocket square or clutch from your favourite fashion boutique.
You want satisfaction. You don’t want to sacrifice. And while you probably can’t even picture your future self anyways, you should recognise the face that future you is not going to be massively different to current you. You want to enjoy your life every day and be able to live well. Your future self is going to want this. You enjoy treating yourself with some of the good things in life. That won’t change either. Your future self won’t have lower expectations than you do.
Most people I meet have big hopes and expectations for the future. You work hard trying to set up a life for yourself, and expect to enjoy the benefits of this hard work in the future. You want to be able to help family and the people you care about. But imagine working through your entire career, just to reach a point where you realise you have to LOWER your expectations and settle for a standard of living less than you’re used to. This isn’t my idea of a life well lived. Is it yours?
Most people don’t start looking at their super until they start getting much closer to retirement. I’ve seen this happen. In my first job in the Financial Advice world I met countless people in their 50’s that had neglected their long term savings for most of their working life. These people knew they should have been doing something, but as it’s so easy to do, they fell into the trap of prioritising things that seemed urgent but weren’t as important, instead of things (like securing their retirement savings) that weren’t urgent but WERE very important.
Recently released show the average 30 year old in Australia today faces the prospect of being able to retire at age 60 on $57k p.a. This may sound ok until you realise that with rising prices and income levels over this period, your $57k p.a. will only equate to 27% of the National average income in 30 years timeˆ (the equivalent of about $25k of income today). Relying on this income in the future will make it pretty difficult to look after yourself, let alone anyone else. Your ability to live the life you imagined when you were young is out the window. Helping out your loved ones would need to be scrapped. Date night with your partner out the window. And the ability to fund regular travel would be almost impossible.
If you want to live well in the future, you need to acknowledge that you aren’t going to want to make huge sacrifices in the future. You will want to be able to live at a standard at least as good as you have it today, ideally better. So you need to do something more than just crossing your fingers and hoping for the best, thinking blind optimism will somehow boost your future bank balance. It won’t.
But there is hope. If you invest, starting small and being consistent will build steady momentum and lead to great outcomes. By making extra contributions to your super fund that cost you less than $23 per day (the cost of lunch with your mates or a cocktail at your favourite after work watering hole), you’d grow your super fund by an extra $1.23m by the time you reach age 60. This additional super money would more than double your retirement income to just over $119k p.a. in future dollars. This would bring you to 56% of the National average income at that time (a pretty solid improvement). Obviously the more you can put in each month, the more freedom future you will have to enjoy life without money getting in the way.
Before you dismiss this idea saying ‘you can’t afford $23 a day (or $690 per month), consider that you are likely to quickly adjust to any change in your situation. Imagine, you received a pay rise of $690 per month; I bet you’d feel great. The first month you’d notice this extra cash in your account. The second month you would too, but you’d quickly find something to spend (or waste) this extra cash on. You’d quickly adjust and soon wouldn’t even notice the extra money. This extra money would not significantly change your life. Just like if you got a pay cut of $690 per month, the adjustment would be just as quick and your life wouldn’t change much (if at all).
Long story short? Just make it happen. You won’t even notice the money is missing in a few months, but future you will thank you for it.
This is a simple example and there a number of important rules you need to think about before you rush out and start cranking up your super fund contributions. Depending on what you’re trying to do right now, there are other things that might be more important than building your super. I suggest getting personalised advice and understanding the rules in detail before you take action, but I wanted to include this to help you understand the power and results that can be created by starting small and building your momentum steadily over time.
But you need to get started. The best time to start was 10 years ago. The second best time is now. The sooner you get started, the easier it is to get results and the less you’re going to feel the pinch of having to save. Don’t bury your head in the sand and think you can just solve this problem later or you’ll pay a heavy price. Set your super strategy now, and be consistent so you can deliver your future self the epic lifestyle you deserve. You’ll hardly notice the difference today, but future you will thank you.
The numbers
ˆI’m going to get a little heavy with numbers here but bear with me. The average super balance for a 30 year old in Australia is $30,975. The average full time income is $78,832 today, but based on current income growth rates the average income is projected to grow to over $213k in 30 years.
Based on long investment performance figures and super tax (discussed below), with only the standard employer super contributions of 9.5%, the super balance of the average 30 year old will grow to $1,158,176 by age 60.
Based on 5% annual income, this level of super could generate an income of $57,908 each year, which is only 27% of the average income of $213k in 30 years. Further, you should note this $57k is in FUTURE dollars where everything is going to cost more. Based on current inflation rates, this $57k will be worth only $24,812 in TODAY dollars.
