Thinking: Short-Term and Long-Term
It’s late May here in Freedomville and that means the kids are out of school. Beginning about a week or so ago our three consumption functions started bringing home a year’s worth of crap that had accumulated in their desks, lockers, and who knows where else at school. The refuse piles were stacked 8-10 inches high on our kitchen countertops, and Mrs. JF almost lost her marbles. So I took everything and moved it to a less conspicuous location to await sorting and disposal, thereby preserving mental health for a bit. But within an hour or two of my remedial effort Mrs. JF—the primary objector to the clutter madness, mind you—had placed another stack of school-expunged items on the counter in the exact same place! I quietly removed the new contraband, silently contemplating how someone as smart as Mrs. JF could fail to appreciate at that moment how this small deposit would undoubtedly lead to the same giant mess of misery if we didn’t eradicate it 100% once and for all right now. But the answer was simple: at that moment the easiest option was to put the junk on the countertop that sat empty right in front of her.
The reality is that our minds most commonly work this way. We are typically not able to see the obvious long-term consequences of our short-term convenience-seeking actions. And this short-sightedness adversely affects our outcomes in many critical and important areas of our lives. Here are a few of them:
- Raising Our Kids. I’ve written before about the prevalence of a “can’t-say-no” attitude of parenting in our affluent area. No doubt this is a deep-rooted psychological issue driven by a multitude of factors, but I believe that a short-term mindset and a lack of foresight is the primary cause. In most situations it’s just much easier to appease by fulfilling the request, giving in to the demand, or doing the task ourselves. It can be hard to say “no,” to take the time to explain the right answer, or to overcome the protests to get them to complete a task on their own. But by failing to do these things, bit by bit, day by day, we are raising children that are needy, selfish, dependent, and not resilient. We think we’re helping them but we’re not. In the long-run we’re handicapping them. The short-term-oriented behavior is creating long-term destruction that many parents can’t or won’t see.
- Diet & Food. The analogy between our daily diet decisions and our daily financial/money decisions is hard to miss. Every day each of us makes a multitude of decisions regarding what we’re going to put in our bodies for nutrition, and if those decisions are consistently made with a short-term benefit mindset, for most of us the long-term result will not be good. A short-term perspective now will likely lead to shaving a good number of years off your life—unless of course you win the genetic lottery and end up being one of those freaks that can eat Twinkies, smoke a pack of cigarettes a day, and chase it all down with bourbon and still live to 100. Good luck with that gambit. But if you take the long-view and eat healthy now—even though you may not see any clear tangible benefits from it for years or even decades—the payoff will most likely be additional years of fully functional living spent with friends, family, and achieving your life-objectives.
- Your Money and Your Freedom. Surprise! That’s the real focus of the short-term versus long-term analysis here. I don’t think it’s much of a “theory” to say that long-term thinking is a sine qua non of financial independence.* If you can’t see past your desire for immediate gratification and foresee how decades of thoughtless spending on stuff will ultimately adversely impact your financial situation, you’re likely to have to work until you die in your cubicle (while clutching your recently purchased iPhone 63, which you bought because all of your friends have it, even though your iPhone 62S was only 9 months old).
The long-term impact of short-term actions that we engage in every day over the course of decades can be very difficult to see—especially so when the output of those actions or decisions cannot be quantified. Fortunately for us, daily consumption and expenditure decisions can be quantified, and that can give us an advantage in our effort to make the most beneficial decisions. Spending decisions—no matter how minute so long as they are potentially recurring—should be calculated as a future value in order to understand the real cost of the consumption.
Although the example of the daily mocha-java-reverse-infusion-cafe-latte from Starbucks is overplayed as the cliche-daily-wasteful-consumption activity (seriously, Vanguard’s take on it showed up in my blog feed just minutes after writing these words but before publishing), I’m going to use it again because it’s just too good. And too prevalent to ignore; the Starbucks by my house has a line ten cars deep in the drive-thru every morning. And cliches are cliches for a reason. So here’s the penny-foolish and, er, pound-foolish math:
The calculation shows that if you invested the $1,440/year that you otherwise spent on coffee in low-cost Vanguard ETFs that earned an annualized 7.5% return over a 40-year career of commuting to your entrapment chamber, you would have an extra $327,249 at retirement (I’m thinking of the typical 25-year-old that will anticipate working for 40 years until 65 and the gold watch).
This concept of trading short-term conveniences and (debatable) pleasures for long-term financial gain (additional years if not decades of NOT being trapped in work) is no great eureka for the FI-crowd. In fact, I can almost hear the groans as I write these words (Ugh! Another post about the future value of daily Starbucks stops! Enough already!). This mindset is what distinguishes the FI-set from the crowd of Working Joes: we are willing to sacrifice short-term pleasures for long-term gain (and many of those short-term “pleasures” end up not really being pleasures anyway, but that’s a different discussion). As an interesting footnote, I have noticed that this mindset manifests itself in other interestingly strange behaviors in the FI crowd, such as a preference for cold showers. See the delectably curious discussion of this topic here on Four Pillar Freedom’s blog. (Seriously, cold showers will change your life. Like hard-core saving and frugality, at first it may suck, but as you adjust and learn to appreciate the virtues of this against-the-grain practice, you will wonder how you survived for so long without it).
But enough about us, the FI crowd. This post wasn’t written for us. It was written in the off-chance that someone sitting in a cubicle somewhere has hit rock-bottom and runs a Google search on “trapped in work” and “financial independence” and finds their way here (after scrolling though 42 pages of search results before seeing this blog … what are the odds?!). Maybe they had another soul-crushing 65-minute commute in their Range Rover and their barista forgot the extra foam (that’s a thing … right?), and then after they fought their way around the parking deck on the walk inside to their desk they saw the newly planted sign announcing the incredibly enlightened corporate policy proscribing the use of the insensitive gender-specific pronouns “he” and “she” and mandating the use of the more sensitive term “it.” And at that moment something clicked (or snapped … but maybe clicked is better) and they knew they wanted—they needed—out. But they have lived for so long with a short-term mindset that they don’t know there’s any other way, and to begin to make the transition they need it described beginning at Level 0. Maybe tomorrow they’ll list their Strut vehicle on Craig’s List, smirk with a palpable sense of moral superiority as they cruise by the suckers waiting in line at the Starbucks drive-thru, and begin a new life of logging long-term gains instead of consuming empty short-term pleasures.
*For you non-Latin speaking, non-lawyer types, sine qua non means “without which not; that without which the thing cannot be. An indispensable requisite or condition.” Sometimes the Latin legal jargon really does capture the thought more vividly.
Footnote: Unlike per-capita cheese consumption and sheet-entanglement-related bed deaths, a long-term mindset and financial independence are actually causally related! This from Seth Godin’s blog: