Wouldn’t It Be Great To Know The Root Of All Financial Problems? Today You Find Out!

A couple of years ago, the State of Illinois was on the verge of becoming the first state ever to have their credit rated as “junk”. This situation was the result of the state spending more than they could afford and then trying to masquerade it with clever budgeting tricks. After decades of mismanagement and kicking the can down the road, Illinois was grappling with $15 billion of unpaid bills and an unthinkable quarter-trillion dollars owed to public employees when they retire.

So, you might be asking “what does this have to do with financial freedom?”

It’s this – The root of the financial problems facing Illinois is the same as every other financial problem, whether it be personal or organizational – ignoring the long-term consequences of short-term decision making.


How do I know this as fact?

If there weren’t so many short-term thinkers out there, the credit card industry would only serve a tiny, niche market. Instead, the credit card industry is a one trillion dollar business, as most Americans have borrowed from their future in order to have instant gratification.

Gone are the days when people were willing to save up to buy something. Instead they will pay double or triple the price of an item just to have it now, which only leads to more impatience. You see, proponents of short term thinking are also its victims.

The heat of the moment is a powerful, dangerous thing. We all know this. If we’re happy, we may be overly generous. Maybe we leave a big tip, or buy a boat. If we’re irritated, we may snap. Maybe rifle off that nasty e-mail to someone. And for that fleeting second, you feel great. But the regret—and the consequences of that decision—may last years, or even a lifetime.

Our nation recently recovered from its most serious financial crisis and economic downturn since the Great Depression. However, the after effects will be felt for years to come. There were many causes of this crisis, but the most significant of those, in my opinion, was the pervasive short-term thinking that helped to bring it about.

Myopic decision making is never more prevalent than with money. Studies show that investors systematically over-value short-term payoffs and pass up investment opportunities that could leave them much better off in the longer term.

Part of the tendency toward short-termism appears to be biological. While the mathematical side of our brain makes careful calculations of risk and reward over time, the more primal, emotional parts of our brain tend to focus on the here and now.

Which part of the brain do you think becomes active when research subjects are presented with real-life decisions involving risk and reward? You guessed it: The more primitive system, which understands greed and fear, but is less focused on long-term consequences.

Science suggests that little has changed in the last fifty thousand years with regards to our ability to think long term. In his 2004 book “A Short History of Progress”, Ronald Wright describes human beings in today’s world as running 21st century software on fifty thousand-year old hardware.

Our brains have evolved to react to short-term crises, such as an attack by a bear. The more subtle cognitive abilities which would allow us to assess and respond appropriately to longer term threats are much less developed within the human brain. As a result we are very good at responding quickly to an emergency, but less so when it comes to taking effective action to head off threats which are perceived as being distant.

What this means, is that if your goal is to experience maximum enjoyment as soon as possible, your decisions will only reflect the short term and you’ll be mostly blind to the subsequent long-term consequences of these actions. And I think we can all agree that short term thinking almost always results in poor choices for the future. Here’s a short story to illustrate…

How long would it take me to become great under your teachings?” the apprentice asks.

“10 years,” the master swordsman replies.

“I don’t have that long,” says the student. “I want to be good very soon. What if I worked very hard and dedicated myself completely to the task?”

“Ok, 30 years,” he says back.

“But that’s even longer,” the student says with some perplexity. “I am telling you I am in a hurry.”

And so the master replies, “Precisely. Students in a hurry end up taking even longer to learn what is right in front of them.”

If you feel like short-term thinking is tripping you up along the road to success, please don’t be discouraged. Thinking in the long term is probably one of the hardest skills to acquire and it often involves a short term sacrifice for results that you may not see any time soon.

There are a couple of ways to deal with it however…

First, recognize that our brains will trip us up, and be prepared to work around it. We must recognize that our brains will look for the short-term gain and will not easily “see” the long-term risk. Getting one more important memo written now will always “look” more attractive than getting 15 minutes of exercise, almost every time.

Thus, our first ally in dealing with our own natural (evolutionary) short-sightedness is awareness. We must ask ourselves, at least for major decisions like money, if we’ve missed some long-term gains or risks because of how our brains typically operate.

We have evolved frontal lobes that give us the capacity to “see” the future, if we pause to do so. This part of our brain gives us reasoning power to come up with solutions that our older, more emotionally driven brain cannot “see”. But we have to make a specific effort to think this way. Our brains will not automatically work in long-term mode, and instead tend to work in the short-term mode as a rule.

And thus we come to our second major ally for dealing with our own brain: routine. If we establish patterns of behavior we just routinely follow, we don’t have to think (and thus run the risk of making a short-term benefit, long-term risk mistake!) For example, consider brushing or flossing your teeth. This is not that much fun, right? If you don’t make a habit of it, you’re not likely to decide “this morning, I think I’ll brush my teeth”! So, you make a routine of it and just do it without thinking.

And so must you do with money.

If you have a habit of spending now versus saving for the future, make a routine out of saving daily. Consider putting $5.00 a day into a jar. I know this sounds simple and the amount is small, but that’s not what’s important. Building the routine is. Also, you’re telling your brain that the habit of saving is important. If your brain won’t recognize the importance of managing $5.00 well, it won’t manage $5,000 well either.

Here’s a couple more bonus tips:

Dedicate time to think about the future. A 1999 Wired profile of Jeff Bezos revealed that he purposefully keeps two unstructured days a week on his calendar so he could allow his mind to wander and generate new ideas.

Routinely “check in” on long-term goals. The same Wired profile reported that Bezos meets with his assistant every quarter to assess his progress on 12 pre-selected initiatives. Mainly, he wants to assure himself that he is spending adequate time on each one by reviewing the past three months of his calendar. The exercise enables him to “check in” to make sure he stays true to his long-term goals and while not getting distracted by new and fleeting ideas.

The key to long term thinking is to imagine your proposed future through the power of your imagination. Focus on the smaller destinations as well as the larger picture. Remember, there is always some action to take however small, to move you forward towards your goals. What are not doing today that you should be doing for your future?

Be free. Nothing else is worth it.

Financial Freedom Monty Campbell

P.S. Why aren’t you wealthy yet? It’s because of something you don’t know. Otherwise you’d already be rich. Isn’t it time to learn what you don’t know? Consider signing-up for my newsletter below, to help you build wealth faster.

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Ready for more tips on how to achieve the free life? Check-out more articles from the blog archives below:

Forget The To-Do List. Here’s A Big List Of Things To Stop Doing. It’ll Help You Build Wealth Faster!

In The Arena? If You Don’t Create A System For Success, You’ll Be Enslaved By Another Man’s.

Everyone Wants To Be Rich? The Facts Show That Most Would Rather Make Someone Else Rich…

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