“Temporal discounting” refers to “an individual’s tendency to perceive a desired result in the future as less valuable than one in the present.” It’s sometimes called “time discounting” or “delay discounting.”
Planning concepts are the protection against Temporal Discounting.
Your plan MUST:
*Be Written.
*Be Specific.
*Create strong reasons.
*Be Thorough.
*Provide a pathway to action.
*Manage, adjust, and track progress.
*First and foremost, your plan must be WRITTEN. Each year (For at least the last forty-five years) I have formulated a written plan of one year, three year, five year, ten year, and twenty year goals. Having those things that are most important to you written and in front of you are critical. It is literally the most important project you will attempt, and the success you achieve both life and retirement will depend a great deal on your success here.
If you don’t have a map, you can’t get to your destination!
Why must it be written?
When you make a formal and written plan you make a deal with your brain.
The words take on a different feeling, as they are the summation of your future thoughts and desires. This is “Present You” telling “Future You” where you want to be in one, five, ten, or even twenty years. A written plan tells your brain you really mean business!
A written plan also allows for collection, aggregation, and collation of thoughts into a cohesive and formal document.
Spending time writing a plan allows a person to decide if they really want that luxury car, or yacht, or mansion. Do you want to work another five, ten, or twenty years in order to realize these goals?
Once you get your luxury car, will you have time to enjoy it, or the mansion, or the yacht for that matter? Will you have to continue working to maintain these things, or just be too old to really enjoy them?
Do you want to retire with five million dollars, or enough to live on comfortably for the rest of your life?
A written plan means critically thinking about and analyzing each aspect of ENOUGH to clarify your goals and help you to understand what ENOUGH money, ENOUGH of work, and ENOUGH to do in retirement really means to you personally.
It’s hard to fool your brain over an extended period of time. Your brain knows when you’re really just kidding!
Are all these things you’re writing down are just a waste of time?
NO! Make your brain a believer and partner!
*As you begin to formulate your plan you must be Specific.
Examples of Non-Specific one year goals would be: I want to be better off financially next year. Or, I want to work less next year. Or, I want to retire rich.
Examples of the same one year goals written in a More Specific manner are: I want to reduce debt by five thousand dollars in one year. Or, I want to take two extra weeks off next year. Or, I want to retire in fifteen years with three million dollars. The more specific your goals, the clearer your plan will become.
*You must Create Strong Reasons for your brain to buy into your plan and partner up with “Present You” to help out “Future You.”
Using our previous examples would alter them slightly to now become:
I want to reduce debt by five thousand dollars this year because the interest expenses I save can be used to fund a retirement plan, make a down payment on a house, or go on a weekend fling with the money saved. (Whatever your reason or reasons used, they must create a strong need.)
I want to take two extra weeks off next year to take the extended family vacation that I’ve always promised my family.
I want to retire in fifteen years with a three million dollar portfolio because I will be sixty years old in fifteen years and I want a passive income of around one hundred thousand dollars a year.
*Be Thorough in your reasoning.
If there are five strong reasons to reduce your debt by five thousand dollars in one year, then list them all. The more thorough your are, the more it reinforces the strong reason, which in turn reinforces your written and specific plan.
Ten reasons to take off two extra weeks next year should all be listed.
Four reasons to save three million dollars in fifteen years are better than one reason.
*Providing a Pathway to Action means that once you have a written plan:
you must have a reasonable framework to implement your plan and eventually attain your goals. Let’s visit our examples again and create a pathway for each:
Reducing debt by five thousand dollars in a year means paying $416 more per month towards the principal of a house mortgage. Or, paying a little over one hundred dollars per week, or fifteen dollars a day. Most people spend more than that eating out for lunch each day.
Two extra weeks off a year for a special vacation means I may need to speak with my boss about rearranging my schedule over the next year to accommodate this time off without losing hours or disrupting my workplace. I may need to work a different or modified schedule to allow the time I want blocked off.
If I want to have three million dollars in fifteen years with a zero rate of return means I have to increase my net worth approximately two hundred thousand dollars each year for the next fifteen years. Re-evaluating using a five percent rate of return drops that amount to approximately one hundred forty thousand each year. Using an eight percent rate of return instead of five percent means saving eighty-six hundred dollars a month or approximately one hundred thousand dollars a year and change.
The numbers here are not really important, but illustrate that once you have a clear, concise, and well thought out plan that there are usually multiple pathways to reach that goal. It also means that if you find no reasonable path forward you may need to modify your plan document.
Probably the hardest planning concept of all is Managing, Adjusting, and Tracking progress.
A study by Statistic Brain on New Year’s goals found:
*75% of people made it through their first week.
*71% of people made it past two weeks
*64% of people made it past one month
*46% of people made it past six months.
We’re not really good at perseverance and attaining goals!
So, Managing, adjusting, and tracking progress are critical! Don’t throw “Future You” under the bus by letting your plan fall by the wayside after a few months.
Earliest progress is hardest to discern and quantify because it is the smallest. It is for this same reason that many financial gurus recommend tackling your smallest debts first. Cancelling a small debt provides measurable progress. You can see something happen. The longer the time frame and the bigger the plan, the longer it takes to see real progress.
You must have a way to reinforce that fact that you are moving forward, even if it’s only a small step at a time. Having this framework also allows you to adjust time horizons, payment schedules, and goal details as time progresses.
Some authors recommend that your plan be shared with a close friend or spouse who acts as a coach and cheerleader to help keep you on track. I personally have never used this tactic, so I cannot comment on its effectiveness.
Now you can put together an actual simplified Written Plan. Grab some paper and find a quiet place when you have adequate time to plan and contemplate what you really, really want your future life to look like. Your Written Plan will help to identify, clarify, and focus the type of life that Future You will live.
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