(Image source: http://www.blog.criminalu.co/2014/03/rule-13-spend-time-wisely-dollars/)
This post is mainly meant to provoke some thought on the issue on our own time value of money. While the "official" time value of money can be taken to be the Singapore Government Securities rate (around 3% for a 30-year bond) or the US Treasury (slightly above 3% for a 30-year bond as well), each of us would have our own time value of money.
How much more are we willing to give just to spend the money now instead of later? Let's also not forget to take into account inflation, but we will not know how much it is until it has actually happened.
Either by increasing returns on our money or by decreasing our own "mental" time value of money are we able to increase our own willingness to save money as we are earning a higher return than we would otherwise expect. But, how do we decrease our own time value of money?
I guess that's just something that we have to think and find out for ourselves, feel free to share any ideas that you might have in the comments. :)
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That is an essential question everybody has to answer for him-/herself.
ReplyDeleteJust last week I read some research about this human tendency for 'extreme discounting'. One report argued that consumers suffer "empathy gaps" and might misunderstand how they would feel in the future about decisions they make in the present.
To people estranged from their future selves, saving is like a choice between spending money today or giving it to a stranger years from now.
How to overcome this "stranger view"? By imagining the future self who would benefit (or suffer) from the outcomes of decisions made today.
In other words it is between imagining yourself as old, healthy, enough money or old, wrinkled, poor health, no money.
In cases of major decisions, we might want to picture our future selves first, then think about how we want to tell our story in the future.
Hi Tacomob,
DeleteThanks for your extra insight into the issue, i agree that imagining our future selves is a good way to reduce the distance between ourselves and the future us, which may help decrease our tendency towards extreme discounting.
From,
Just Some Thoughts