Time is money, but not like you think

Sarah Newcomb, Ph.D.  |  23 March 2018  |  5 min read

Key points:
  • The further you can think ahead, the better you’ll be at building wealth
  • People on low incomes with a long mental time horizon are just as good at saving as those on high incomes
  • Simple activities can extend your ability to think ahead

We all know someone who’s rolling in money but remains anxious and stingy when it comes to spending. Then there are others who don’t seem to have enough but continue to cheerfully spend their way into debt. These are both great examples of why any meaningful definition of ‘financial wellness’ must include more than just the numbers on your bank statement.

At Morningstar, we see financial wellness like this.

Financial wellness

(Mental) Time is money

Here on the behavioural science team, we’ve been combining psychographic research with traditional demographic approaches in order to learn more about the factors that drive financial wellness.

In a recent survey, we found that while income certainly affected people’s savings rates, other demographics such as age, education, gender, and region were less important. What was especially interesting was that one significant factor related to savings was unrelated to demographics. It had to do with time. Specifically, mental time.

People who think further into the future tended to save more frequently and build more wealth. What was especially striking is that this effect was significant even when controlling for income, age, gender, and education.

Among those who think long-term, even those on low incomes had savings habits that rivalled the short-term thinkers in the highest income group, those earning over $200K per year. These habits included:

  • Saving from every pay-cheque
  • Saving up for large purchases
  • Saving for long-term goals such as buying a home
  • Saving for retirement

The contrast between long- and short-term thinkers is even more striking when we look at retirement savings. Here we found:

  • When a person’s mental time horizon is short they do not have nearly as much saved for retirement as those who think long-term, even when they earn a lot more.
  • Those who think in the long-term, as long as they are earning at least $25,000 per year, are finding ways to save for retirement.
  • This effect was significant even when controlling for age, education, gender, and region.

Clearly, (mental) time IS money.

What can you do to extend your mental time horizon?

First, take stock of your mental time horizon. How far ahead do you tend to think and plan? A few weeks? Months? Years? Your day-to-day decisions will be deeply affected by your mental time horizon. Previous work I have done in this space showed that mental time horizon and clarity of one’s picture of the future may even reduce the effects of impulsiveness on financial behaviours.

If you find that you think fewer than five years ahead on average, you may be at risk for higher debt-to-income ratios, lower savings rates, and impulsive spending. The good news is that there is hope.

Helping yourself ‘see’ further into the future can affect the choices you make today. One fun way to do this is to age progress your face, using health apps like Oldify or websites like changemyface.com.

If you’d rather not see yourself age, this simple visualisation exercise can help you develop a clear picture of your future.

Write a one-pager that details what you would like your life to be like 10 years from now. Write in the ‘first person’ and complete the following sentences:

I will live… (where?)

My home will be … (what kind of home?)

I will spend my time doing … (what kinds of activities/work/recreation?)

I will spend my time with …(who?)

The important thing to remember with visualization is detail. In our research, we saw that clarity of a person’s mental picture had a large impact on behaviour (almost as much as time horizon). The combination of thinking further ahead and thinking with clarity and detail is a powerful mental trick to drive better savings behaviours.

Thinking ahead is a habit, and all habits take time to build. If you are accustomed to thinking short-term, trying to push your view out 30 years may be unrealistic. Do you only think about the next six months? Try to think about 1 year from now. Do you think a year or two ahead? Challenge yourself to make a three-year plan.

This one mental factor can affect thousands of tiny daily decisions, and in the end, it may mean the difference between a timely, comfortable retirement and a delayed, precarious one.


Sarah Newcomb, Ph.D. senior behavioural scientist for Morningstar, Inc and author of Loaded: Money, Psychology, and How to Get Ahead without Leaving Your Values Behind

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