I want to tell all of you a secret. You can predict the future!!
For some of you this may come as a shock. For others you’ve known this so long you have “I told you so” tattooed across your forehead.
Whichever group you belong to it’s important that you use this power wisely. Luckily for you this is a personal finance website and I am your humble servant. This means I do want you to use this power to get rich!!
Don’t use it buying lotto tickets or betting on sporting events. I want you to use it to protect yourself from the future you. Future you is constantly trying to sabotage all of your hard work with their nonsense. Today I’ll show you how to defeat your evil alter ego.
How to Predict the Future and Use It to Get Rich
This post has been written by Brandon from 30and0.com.
I’ll use myself as an example. I have set spending, investing, and savings goals every year. I make great progress towards these goals when it happens….I get the Facebook notice for the event I agreed to go to is this Friday! Crap, I still have to get tickets! And once I am out I know that I’ll buy snacks; snacks are delicious but damaging to my waistline and finances. Suddenly, I have created a $100+ crater in my account.
Admittedly, this story speaks to my absent mindedness for social commitments, but we all have something that pops up on us once in a while.
- Maybe it’s your cousin’s b-day.
- Perhaps it’s your annual pest service.
- Your child getting sick and creating a medical bill.
- And, depending on your credit cards it could even be your annual fee.
The expense itself isn’t important. Its effect is.
The Predictability of Our Future Selves
This is where our ability to predict the future come in handy. We know that our future selves are going to blow our goals because of their lack of planning. So in the present we need to plan for their failure to plan!
This contingency money can be used for anything that we missed when plotting our expenses. This is an intermediary account that tackles things your emergency account shouldn’t be bothered to handle. Using your ability to predict the future keeps these expenses from becoming major issues.
All you need to do is take a relatively small amount and leave it in your checking account at the end of every pay period. Somewhere in the range of $50-$100 is a good place to start. There is a bunch of great advice out there on how to get started saving. We only need to make a small dent. The great news is that anytime you spend less money than planned you can add it to the contingency pot.
Sabotaging Ourselves Against Compound Interest
If you’re reading a finance blog it’s safe to assume you’re familiar with some version of a compound interest chart. If not, you may want to quickly check out J.D. Roth’s epic article, “The Extraordinary Power of Compound Interest” and/or take a look at his awesome chart below:
You’ll notice the earnings end up being much larger than the actual contribution – thanks to the interest compounding on itself again and again.
This means that allowing your future self to derail your goals hasn’t just set you back in the present amount. It sets you back whatever that amount would have turned into on the other side! A few hundred dollars wasted may not be so bad, but knowing that you cost yourself thousands of dollars in the future is painful. I mean your niece has a birthday every year, right? But somehow it always surprises you and you end up stealing from your future self.
Now think about the fact that this happens several times a year. Every time this happens you are costing yourself tons of compound interest. You can never truly regain this compounded interest once its lost! You can try throw more money at the problem here and there, but time waits for no one. Every time you allow this to happen, thousands of dollars fall off of your future net worth.
So How Can Predicting My Future Self Make Me Rich?
Want to know how predicting the future makes you rich? By using this knowledge to do the exact opposite of what you normally do! Every time you use your contingency fund (vs. your credit card or emergency fund) you’re protecting your future. You’re human, I assume (Derek does not listen to me about installing CAPTCHA…so I guess it’s possible that you’re a robot). Humans make mistakes. It’s a fact of life. Knowing that you will ultimately make a mistake means we can take steps to keep it from hurting us.
Don’t let something you know is coming derail your greater goals. You can read the future. Act like it!
All you have to do is set aside a relatively small sum of money and just wait for your future self to drop the ball. Being prepared means your college roommate’s sister’s friend’s wedding registry need not go unfilled (hooray…?). And, the money that you had going into your investments can stay there, grow, and make you rich. BOOM. Problem solved.
Don’t let YOU derail YOU from your goals! Look into your crystal ball and protect your assets with your small intermediate account.
Will you predict your future and use it to get rich? What things always seem to screw up your bank account?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.