Living only in the present can break your financial future

'Present bias' is where we put the here and now ahead of whatever we might be planning to do in the future – and we all do it; whether it’s eating that extra piece of chocolate cake, staying up late to watch the latest episode of your favourite TV series, or splurging on a new pair of shoes.



Long-term rewards come from looking into the future, not starring into the mirror. 

We become accustomed to a better lifestyle very quickly, and the short-term hit of new things is addictive; our brain constantly wants its next dopamine hit, requiring more and more consumption to satisfy ourselves.

Not to say we can’t spoil ourselves now and then – we can and we should, living in the here and now is something we often fail to do in our fast-paced lives – but we need to be careful that we differentiate between the transitory happiness of consumption and being happy in the longer-term.

The first step to overcoming our brain’s endless desire for reward is being aware of our tendencies for these types of behaviour and understanding which ones we are most susceptible to.

1. Have a budget, and stick to it

Budgets have a bad rep of being boring, complicated, or even daunting. However these days you can easily use an app, software or a website with tools to help you to stay on top of your money. The aim is to put forward-looking controls back into your finances and reduce the impact of present bias. As basic as it sounds, developing a budget is the foundation of your financial well-being.

2. Remove temptations

Willpower is a finite resource. Every time we say no to temptation, it makes us more susceptible to succumb to the next impulse. Modern life with its omnipresent advertisements, endless products and services that are designed to entice and capture, easier-than-ever purchase methods can make exercising self-control even harder.

Removing temptations is a simple yet effective way to prevent us from succumbing to our impulse. Set up automatic transfers to have a portion of your pay go into savings accounts, or invest your surplus cash in a managed fund so that money is preserved in an investment instead of being available for splurges; another good tip is to use a debit card instead of a credit card so you cannot spend the money you don’t have.

3. Have a support system

Friends, partners, mentors or financial advisers may offer us insights and value when it comes to reducing present bias. Sometimes we forget our long-term goals and veer from our intended direction with inappropriate decisions, particularly under pressure. Our support network can provide emotional support, a behavioural monitor, progress tracking, perspective, confidence and accountability to help us stay on track.

4. Spend wisely

Choose consumption that provides longer-term satisfaction/benefits, rather than short-term rewards; Experiences have been shown to have much longer-term impacts on happiness than mere things, so spending money on things like holidays rather than objects, provides longer-term satisfaction.

Human brains are wired for immediate satisfaction – we discount the value of delayed reward, by a factor that increases with the length of the delay. Few people realise they have such bias, let alone deliberately try to overcome it.

Those who do, with a modicum of effort to identify some goals, form good habits and develop a long-term plan – experience considerably more happiness and success.

Mia Yan is a strategic financial adviser for Mercer in Melbourne. She has six years’ experience in the financial services sector and holds a Master of Commerce in Accounting and Applied Finance, Advanced Diploma of Financial Planning.

Mia Yan

26 March 2018