How To Make Financial Sacrifices Easier

Sacrifice is the act of giving something up in the present for the sake of something of value later. We make decisions every day that has the potential to impact our future self. This could be as obvious as not buying a Latte from the corner coffee shop or purchasing Avos from Aldi instead of Woolworth’s. It can also be less obvious, like drafting a living will or saving towards an unborn child’s education.

So how do you make financial sacrifice easier? The trick is to realise any sacrifice you make today is a reward you’re giving to your future self. And any sacrifice you don’t make today is a sacrifice taken from the future you. Let me take you through the idea.

A brain only weighs about 2% of our total body weight. Still, it consumes a disproportionate amount of our body’s total energy – 20%, in fact. It stands to reason that because the brain is such a resource-intensive organ, certain shortcuts became necessary to conserve energy. When we first learned to drive, it took all our attention – changing gears, indicating, checking every mirror, and not hitting the sidewalk. But as we became proficient, it got easier. The intensity of our focus on the complexities of how to drive decreased. We started to listen to the radio, talk with others in the car and allowed our minds to drift into other thoughts. So, we simply started to pay selective attention while driving. This selective attention was perfectly demonstrated by Daniel Simons and Christopher Chabris in their awareness test. Have a look at the video and count how many times the players in the white shirts pass the basketball.

This video demonstrates very nicely one reason we don’t make the “obviously” better financial decisions. Most people go about their life preoccupied with family, work and other things of interest. You don’t focus on the gorilla because you are too busy counting the basketball passes.

There are naturally many other reasons why we don’t make better financial decisions. That is why most people need a financial planner to help them build financial plans to reach their ultimate goals. In his book; Behavioural Finance: A guide for financial advisers, Dr Simon Russel gave some good advice to us finanical planners and advisers. He said, “At the very least they (financial planners) can use psychological insights in the way they communicate with their clients to direct clients’ attention”.

In Jordan Peterson’s latest book, Beyond Order: 12 More Rules for Life, he talks about seeing yourself as versions of yourself spread out over time. He describes it as follow: “there is the you now, and the you tomorrow, and the you next week, and next year, and in five years, and in a decade—and you are required by harsh necessity to take all of those “yous” into account”. He argues the decisions you make today ultimately influence or impact the future you in some way. This got me thinking about financial decisions and how I can use this idea to make better financial decisions for the future me.

The way I imagine Dr Peterson’s idea of versions of myself stretched out over time is like the folded-up paper we used as kids to cut a human outline from. When you pulled the paper apart, all of a sudden, the single human cut out turned into many versions of the same paper person and linked to the one next to him. We study at school or varsity to reward our future self with job security. We take career risks to reward our future self with a more comfortable life. We get married to reward ourselves with a loving relationship, children, friendship, and companionship when we are old and frail. Suppose we neglect our studies, job, friends, or family. In that case, it could negatively impact our future self – they might grow tired of our bad behaviour and leave or treat us just as bad. So, we generally work hard at our jobs, care for our friends, and love our families because we will inevitably suffer the consequences if we don’t.

If we apply this concept to financial planning, it can lead us to make better financial decisions. We purchase life cover to service debt or provide security for your loved ones when you are no longer with them. You pay for life cover with money you earned. So you’re sacrificing a want or a need today to reward yourself with the peace of mind that your loved ones will be financially taken care of when you die. We purchase income protection and pay an insurance premium to insure our future income. Think about retirement; saving now is a reward to 65-year-old you with a comfortable life. The same concept applies to short-term sacrifices. Suppose you want to go on a vacation or buy a dream home. In that case, you need to sacrifice something today so future you can enjoy a well-deserved holiday or a home to raise a family.  

I believe thinking about sacrifice as a delay in reward for something of greater value, later on, makes the sacrifice easier. It seems to me that sacrifice is a zero-sum game. You might delay that sacrifice today, but eventually, it will catch up and then you might not have the luxury of deciding what you are going to sacrifice.