Planning for the future? Why pessimism is more productive.

What will you be earning in ten years?

Most of us can’t really answer that question. We might have a guess as to the answer, but it’s little more than a guess. However, almost all of us make quite a few decisions today based on our gut feeling about that question.

Let’s say you knew for certain that in ten years you’d be making four times as much as you’re making right now. Would that change how you behaved today?

Let’s say, on the other hand, that you knew that in ten years you’d be making only a third of what you’re making right now. Would you do things differently today?

Now, here’s the real key question. Which one of those two paths will ensure the best possible future for you, regardless of income?

Unless you’re doing something strange, the gameplan you would use for making a low income would be far better for you over the long run than the gameplan that assumes a big income.

Why? If you assume a big income, you’re more likely to make moves today that rely on being able to pay off debts down the road.

If you know you’re going to earn $200,000 a year in ten years and you only make $50,000 a year right now and you’re about to buy a home, it’s going to be far more tempting to buy the most expensive possible home. After all, you know that your future self will pay for it, right?

On the other hand, if you’re making $50,000 a year and are about to buy a home, but you know you’ll only make about $17,000 a year in ten years, you’re probably not going to buy the biggest house you can afford at the moment – that would be completely foolish.

The thing is that we use these kinds of pictures of our future with almost every major financial decision that we make. The more secure and bright we believe our future to be, the more likely we are to commit to big long-term expenses today.

In terms of actually building toward debt freedom and long-term financial security, though, you’re far better off using a pessimistic future as your guide. If you assume that your income is going to be low in the future, you’re going to make more conservative moves that keep more money in your pocket.

That way, when the future really does arrive, you’re far more likely to have more money than you expect than not enough money. This is far better than the other option, in which you assume a rich future and spend accordingly, only to likely find yourself not having enough money when that future arrives.

If you want long-term financial security, avoid making financial moves that rely on you having significant income in the future. If you need to take out a home loan, buy the smallest house you can live with. If you can’t afford the expensive car without debt, buy the cheaper car. With those lower monthly payments, it should be much easier to sock away as much as you possibly can.

That way, when you wake up in ten years, you’ll find that you’re in good financial shape no matter what your income happens to be. It’s a far less stressful way to live.