Financial planning often centers on the future: preparing to buy a home, having children, handling an emergency, or retiring. That sort of future thinking is extremely important when it comes to your big-picture financial plans.

But too much future thinking can actually be detrimental to your financial health. Have you ever made a big purchase based on what you think your career or income will be like in the future? Basing your current spending decisions on your expected future finances is a big risk that often leads to disaster.

What do you need to purchase for your life right now?

It can be fun to think about what your finances will look like in a few months, years, or decades. And those aspirations are often vital to maintaining your motivation to advance your career. Thinking ahead is what allows you to put part of your paycheck toward a master’s degree, emergency fund, or retirement account.

But you can’t make all your financial decisions based on the future. Many people start thinking about their future income and then tie their current spending to that vision of the future. Of course, that becomes problematic when your spending doesn’t align with your current financial reality.

Let’s say you’re thinking about moving to a new area. You have a good idea of what your income would look like there and how it would compare to the cost of living. You’ll need a better car for your commute, so you decide to trade in your old Civic for a brand-new Tesla Model X. The payments are pretty steep for you right now, but it will be easy to accommodate them once you move.

Of course, if the move never happens, you’re stuck with years of car payments that are hard to fit into your budget.

It’s easy to see the risk when you read a hypothetical story like this one. But it’s very tempting to use your future finances to justify buying something you really want right now. Many people simply default to thinking about their future finances when they’re budgeting.

Before you make a big-ticket purchase, like a car, think about whether it’s something you actually need right now or something you want based on your future goals. Sure, you’ll enjoy driving that new Tesla way more than your Civic, but do you really need it right now? Can you afford the payments with your current income? If the answer is no, it’s best to wait until that future is actually a reality.

Having a positive outlook on your current situation

Tying your purchases to your current situation instead of your future income is difficult. It takes discipline, and it can feel like an unpleasant experience. You’re constantly denying yourself what you want with negative phrases like, “I can’t afford that right now,” or “I can’t do that yet.”

While a little reality check isn’t a bad thing every once in a while, constantly viewing your current financial situation in a negative light can lead to budget burnout and stress.

  • “What can I afford right now?”
  • “What possibilities do I have with my current finances?”
  • “What are some areas where I can splurge a little bit?”

For example, maybe you realize that if you hang on to your paid-off Civic for another year, you can put a little extra money into one of your hobbies. Or perhaps that container garden you started during quarantine is really taking shape and you can cut back on dining out because you have so many fresh ingredients to cook with.

Maybe the last couple years of no vacations have left you enough to upgrade to first-class on your upcoming trip. When you think about what you can do with your current finances, you can make wise decisions that don’t always feel like denying yourself.

Basing your financial decision on your current reality

OK, you’re committed to avoiding the trap of future thinking when you’re making financial decisions. What does that actually mean?

Here are some practical steps to take:

  • Check your budget. Make sure to include your partner if you have shared financial responsibilities.
  • Verify your income. Do the math to calculate how much you actually take home after taxes, insurance, retirement, and other essentials.
  • Look at your debt. What sort of monthly payments are you making? How long do you have before you can pay off your loans or credit card bills? 

The most important part of all this is honesty. It’s really tempting to fudge some numbers if it means you can take that dream vacation or buy something you want right now. But if you’re going to base your spending on your current reality, you need to be honest about what that looks like.

Make the best financial decision for right now

Thinking about the future is an important part of personal financial management. It’s wise to look ahead and consider future monetary responsibilities like childcare expenses, college funds, and retirement savings. But when it comes to your everyday spending decisions, it’s essential to focus on the present, not the future. 

If you are going to make smart spending decisions based on the current state of your finances, you need to know exactly what you’re dealing with. That means really digging into your income, expenses, debt, and savings. If you don’t have a solid understanding of your finances, start by creating or updating your budget. Our BudgetingBlocks™ system allows you to visualize your money so you know exactly what your finances look like.