Present Bias explains how our mind naturally puts too much value on things we can have right now and not enough value on things we don’t get until later. This is what causes a child to choose 1 piece of chocolate right now over 5 pieces of chocolate tomorrow. In an interesting experiment done at Stanford, study participants set up a financial plan for retirement. Half of the participants were first shown a computer generated picture of their future self showing of how they might look in their 60’s. They were also asked to talk about what they pictured themselves doing in retirement. The other half of the group skipped seeing a picture of their future self and talking about what they wanted to do in retirement and went straight into planning for how much they wanted to save for retirement. The group that looked at the pictures of their future self naturally decided to save significantly more money than the the group that didn’t spend time imagining their future self.
When we daydream about something we will get in the future, we create an emotional connection to that thing in the present. In a very real sense, we can trick our minds into treating things we will get in the future, the same way we treat things we get right now. This makes it much easier to fairly compare things we’ll get in the future with things we can have today.
When you set up SpendPal we encourage you to give your Categories fun and interesting names. The more meaningful the Categories are to you, the more it paints a picture in your mind when you look at each Category. This helps you naturally treat each Category fairly and avoid accidentally spending money being saved for something important on something else you’d later regret.