Ed McKnight: Think about money in decades, not days

Most people think about money in terms of days. Wealthy people think about money in decades. Here's how to think about money differently: Based on this calculator. 

Ed McKnight joined Jack Tame to look at how Kiwis view their money, and why we should start counting decades, not days.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Our personal finance expert Ebingnight from Opie's Partners is here
this morning. Hey, Ed, great to be here, Jack, great
to be speaking with you. So it turns out there
is a big difference between the wealthy and people like me,
probably more than one difference. But the difference you want
to focus on this morning is that wealthy people think

(00:38):
about money in terms of decades, whereas a lot of
people think of money in much shorter terms.

Speaker 3 (00:46):
Well, that's exactly right. If you're financially stressed, you tend
to have to think about your money in days. You know,
you're thinking about how do I pay my bills this week?
How do I get through to the next payday? And
that's when you're in survival mode. Now, if you're a
little bit better off, you might think about your money
in terms of months. You know, how do I say
for the next holiday, or you know, maybe I can
save up enough money to buy a different car at

(01:07):
the start of next year. Well, if that's you, you
might be thinking about your money in terms of months,
and in that case, you're in what I call the
comfort zone. But it does turn out that really wealthy
people do tend to think about their money in decades,
and you're thinking about, well, how can I build some
wealth for the next two to four decades. And if
you're in that mindset, you're really in what I call

(01:28):
the wealth mode. But just before I talk about how
do you go about changing your mindset? Because it's easy
to talk about that in theory, but what do you
actually do to change your mindset? Why is it that
we all know we really should invest more but we
don't do it. Well, there's a nerdy term that I'll
teach you to today deck. It's called temporal discounting. Now

(01:49):
forget the technical term. What that really means is our
brains love stuff now, and we don't really value stuff
that we might get in the future. So if you've
got one hundred bucks, you love to spend it now,
you don't really value as much what that money could
turn into few yeah, Yeahmilarly, if you go out and

(02:11):
spend money on your credit card because it doesn't feel
like money is leaving your account now, you don't really
value the fact that you might have to pay interest
on that in the future. So our brains are really
wired to now now, now, getting stuff now, rather than
putting money aside and getting even more stuff in the future.

Speaker 2 (02:28):
Yeah, So I did the there's a calculator on your website,
which is really good. So I worked out my kind
of life expectancy given my age and gender and that
kind of thing at the moment. So there's a fifty
percent chance, according to your calculator, that I'll live to
eighty nine, which means that I really do need to
try and get past what is the temporal disconnect and
think about the future.

Speaker 3 (02:49):
This is the interesting thing. Now, to a person with
a hammer, every problem looks like a nail. I'm an economist,
so I think every problem can be fixed with a calculator.
So if people google the how long will I live calculator,
and you might need to put in put in open
as my account, the opes and this will come up.
You put in your age, your gender, when you started working,
when you get to retire, and it gives you a

(03:11):
kind of this is your life. So if you're a
forty five year old woman, you started working at the
age of twenty and you want to retire at sixty five,
well you've been working so far for twenty five years.
You've got twenty years left in your work life, and
you've got to use the next twenty years to set
yourself up and pay for the twenty six year retirement

(03:33):
that you're going to eventually have, because you've got a
pretty decent chance of living till ninety one. And so
just running your numbers like this gives you a bit
of this is your life and shows you there is
simply what your life looks like in decades and that
can help change your mindset.

Speaker 2 (03:45):
Yeah, so good. Hey, thank you very much, Ed, And
like you say, you can access that how long will
you live calculator on the Opie's website. We'll Wake So
there's a link on the news that was your b
website as well. Guess your own need Jack.

Speaker 1 (03:59):
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