Spend more now and less later

Tuesday, November 22, 2016

Spend more now and less later



Worried about a plunging stock market due to last week’s US election results? Me too? Well not really, it depends on one’s perspective.

But here's a helpful idea: Simplify. Simple decisions we make about our personal spending will have a greater impact on our long-term financial security and standard of living than anything we can say or do about the condition of the world and its markets. Basically, focus on things within your control!
Today, I will once again talk about behavior and some psychology, specifically the “Hedonic” kind.

Historically, approach and avoidance motivation have been linked to the hedonic characteristics of pleasure and pain. The root word hedonic comes from the Greek word for “sweet”, which means relating to or characterized by pleasure.” – From Wikipedia

Hedonic motivation refers to the influence of a person’s pleasure and pain receptors on their willingness to move towards a goal or away from a threat. In short, people approach pleasure and avoid pain. And this pretty much sums up most of our buying or spending decisions.Hedonic goods are bought so that the consumer may gain pleasure and enjoyment from the good, and value experiences are also viewed as hedonic experiences.

Another “Hedonic” factor is Hedonic Adaptation – it is one of the potential reasons as to why buying more will not make you happy at all.Basically, people can easily adapt to living with less, without suffering many negative consequences, but when we are constantly pursuing more, we have to get even more to stay happy.

We must also understand and accept that the anticipation of “something new”is a huge part of the enjoyment of purchasing goods or services, so it is best to plan your purchases and savor the process.
Have you heard of the“Hedonic Tilt”? It's the formal title for what most of us want to do in retirement. We want to spend more now, while we can (physically) enjoy it. And we'll cope with spending less later, when our ability to enjoy spending may have gone by.

Note: But the financial industry most of the time tells you the opposite (Save now, enjoy later)!!! Well, that’s correct too but not all people want to do that.

That’s an awesome concept right? Yes, but too much of anything can become a bad thing as well. And that is if we get too enthusiastic about spending today, we may have a really big problem in the near or distant future (Like retirement income, funds for medicine and the like).

Since you are spending a lot now, might as well said aside a considerable amount to invest anyway. Now if you think that’s too much of a burden, you can simply put your investments (with the goal to beat inflation at the very least) in a pooled index fund, automate contributions/payments and still continue to pursue that hobby, career, life goals, your hopes, goals and dreams.

Repeated studies in the US have shown that spending declines as we age. Sure, medical spending increases, but other spending declines more. The trade-off should be carefully considered and planned accordingly. But investing here and now is still the best time to start your spend-more-and-less-later-plan!

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The writer is an RFP® - registered financial planner of RFP PH, Licensed Real Estate Broker and Director of CERTA, Inc., a family estate planning and investment advisory firm. To know more, please visit www.certa.ph
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Originally Published in Philstar - The Freeman Newspaper last November 15, 2016.

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