“Would you rather receive €100 today or €110 in one week?”

“Would you rather receive €100 in one year, or €110 in one year and one week?”

This type of experiment has been replicated countless times, always producing the same result: the majority of people prefer €100 today in the first scenario, and €110 in the second.

From a purely rational standpoint, this makes no sense.
In both cases, the difference is only one week, and €110 is almost always better than €100.

So why, in one case, do we prefer €100?

That’s exactly what we’ll explore in this article.

What Is Hyperbolic Discounting?

As human beings, we are affected by hyperbolic discounting, an innate instinct that leads us to overvalue the importance of having resources available now rather than in the future, even when we don’t actually need them immediately.

This instinct comes from our prehistoric past. When humans were still living in the savannah, having resources available right away could make the difference between life and death. Accumulating as much as possible whenever resources were available was essential for survival.

Today, of course, this is no longer the case. We are rarely, if ever, in a life-or-death situation due to a lack of resources. For example, when food runs out, we simply go to the supermarket.

However, while society has evolved rapidly, our brains have not. From a biological standpoint, they are essentially the same as when we were living in the savannah.

As a result, the instinct to want everything immediately is still deeply ingrained in our nature.

And while this instinct was an advantage for a prehistoric hunter, it becomes a serious problem for a twenty-first-century investor.

Because investing means giving up money today in order to have more money tomorrow.

This behavior is the exact opposite of hyperbolic discounting, which favors a smaller but immediate reward over a larger reward that lies further in the future.

That’s why it’s essential to equip ourselves with strategies to overcome this psychological bias.

But how can we do that?

Invest Only What You Can Afford to Invest

It may sound obvious, but this is the first principle to keep in mind.

Investing more than you should—thereby exposing yourself to an excessive level of risk—can genuinely put you in a situation of resource scarcity.

That’s why having an adequate cash reserve for day-to-day expenses, along with an emergency fund for unexpected events, is absolutely essential.

Taking on more risk than necessary means losing the real opportunity to achieve the investment goals you’ve set for yourself.

But even in an optimal situation—where the money being invested is truly surplus and not needed for present-day living—investing can still feel like a sacrifice for some people.

“You only live once,” “I don’t want to be the richest person in the cemetery,” and similar phrases are often repeated to downplay the importance of saving and investing.

They are catchy and appealing slogans at first—until the bill eventually comes due.

For example, when there isn’t enough money to supplement an extremely modest public pension.

When there isn’t enough money to support the education of a child who deserves access to a prestigious university.

When there isn’t enough money to travel, change cities or jobs, or pursue any other dream or goal you may have.

These—and many others—are the far from attractive scenarios that can arise.

Yet, despite being deeply unsettling and uncomfortable to even imagine, taking action to avoid them often feels exhausting and psychologically repelling for many people.

So how can we fight this ancestral instinct and become truly aware of the need to make a greater effort today?

Visualize the Future Goals You’re Working Toward

If you focus only on the effort required, saving and investing will never feel appealing.

Thinking about the achievement of a concrete goal—and being able to clearly visualize it in your mind—is the only way to see investing as a purposeful journey rather than a meaningless sacrifice.

It’s not enough to vaguely aim for “having more money,” which is an abstract and weak form of motivation.

You need a vivid image of a goal that truly motivates you, and you must see every euro saved and invested as a building block that brings that goal closer to reality.

A fitting example—one that some may consider extreme, but that can certainly point the way for everyone—is Warren Buffett.

From a very young age, Buffett understood the extraordinary potential of capital in the present to become a much larger amount in the future thanks to investing and compound interest.

One of his most emphatic remarks is well known, when he once asked himself:
“Why would I ever pay $300,000 for a haircut?”, thinking about the potential long-term value of that money.

Clearly, this is an extreme example. The lesson is not to give up going to the barber, but to understand that visualizing future goals and outcomes is the only way to give meaning to present-day choices—whatever those goals may be.

Only in this way can you silence your brain and resist the temptation to spend everything today: by realizing that the money you save now is what will ensure your future prosperity.

Just as the children in the famous marshmallow test were able to delay immediate gratification thanks to the promise of a second marshmallow later, as adults we must apply the same mindset to achieving our most important financial goals.

We live in an increasingly instant-gratification-driven world, where with just a couple of clicks—or, at most, a credit card—it’s possible to indulge in compulsive spending immediately.

Today more than ever, our ability to resist instant temptations in order to enjoy future benefits is constantly being tested.

To succeed, it’s essential to build an investment strategy upfront that is based on your life goals—and to be able to stick to it over time.

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