Part 2 of 5: From Emotionality to Intentionality: Calm in a Costly World
Inspired by Justin Wolfers' Platypus Economics article, A User's Guide to Living With Inflation.
By definition, the future is about what will be, not what is. When we think about our financial future, we must think about our life circumstances as they will be, not as they are. Much of what will be is uncertain, but inflation is certain. Benjamin Franklin famously noted that only death and taxes are certain, but I think we can confidently add inflation on that list.
We must think about our financial future as more expensive. By making inflation an integral part of our financial mindset, we envision our financial future more accurately and we avoid the unpleasant surprise of unexpected higher living costs.
In the agreement you make with yourself about your future, be sure to include the certainty of inflation. When you make a promise to yourself to save, build into your savings plan a consistent increase to prevent inflation from eroding the value of your savings.
Honor the contract with your future self.
In part 1 of Emotionality to Intentionality: Calm in a Costly World, I explored why it is common for people to impulsively react before translating income and expenses into real terms. Wolfers’ idea was that before you react or make a decision based on a dollar amount, you should understand how time and inflation affect the dollar amount.
A dollar amount alone (the nominal value) does not tell the full story.
Now, for part 2, I want to explore how to better connect to and consider our future-self. Our future-self that lives in a different economic world than our present-self.
Here is Wolfers’ idea #2 from A User’s Guide to Living With Inflation, followed by my insight from a financial therapist lens.
✨ Idea #2: Build inflation into your contracts
“If you’re writing a deal that lasts over time, build inflation into it. Economists call this indexation, which is a wonkish way of saying that the dollar amounts should automatically adjust when the price level changes. This matters whenever today’s dollar amount is meant to govern tomorrow’s life: wages, leases, retainers, child support payments, pensions, and long-term contracts.”
Building inflation into a contract sounds reasonable and straightforward. An idea very much based in reality that if and when prices change, the dollar amount changes too.
But it is not always easy to execute because people don’t negotiate in purely economic terms. People negotiate through emotions.
Here are three reasons why it becomes complicated:
Negotiating for inflation adjustments can feel socially uncomfortable.
People will often worry that asking for indexation makes them seem demanding or that they are coming across in a negative way. Financial negotiation conversations can challenge the status quo, introduce uncertainty, and potentially create tension in a working relationship or power dynamic.
An employee asking for cost-of-living adjustments may worry about appearing greedy or selfish. People fear being judged.
Research on the psychology of asking shows that people often underestimate others’ willingness to respond positively and overestimate the discomfort associated with making a request.
Vanessa K. Bohns has researched how people underestimate others’ willingness to help and overestimate the discomfort of asking. Her work shows that people often think requests will be more burdensome or awkward than they actually are.
Although Bohns’ research focuses on help-seeking rather than salary negotiations, the basic idea is the same. Requesting an inflation adjustment requires someone to initiate a potentially uncomfortable conversation, and the anticipated social cost of that may feel larger than the actual cost.
It forces us to acknowledge uncertainty.
Indexation requires us to admit that prices will change, the economy will change, and our needs will change. Not only are we trying to maximize financial outcomes, we are also trying to reduce uncertainty, and fixed numbers create an illusion of stability, a feeling of certainty.
A clear, stable number helps us feel less anxious because it provides us with a sense of control. Indexation makes the uncertainty visible and that can feel uncomfortable, even though the real uncertainty exists whether visible to you or not.
The irony is that indexation is designed to manage uncertainty, but psychologically it can feel like it introduces more uncertainty because future outcomes aren’t fixed.
When negotiating a salary, most people are not consciously thinking:
“Will this salary maintain my purchasing power over the next 5, 10, 15 years?”
They are more likely thinking: “What is my salary going to be?” or “I deserve a raise of $1,000.”
A fixed salary answers the question very clearly:
“Your salary is $90,000.” That certainty feels stable, predictable, and comforting.
An indexed salary answers the question differently: “Your salary will adjust based on inflation.” While that provides more protection, psychologically it can feel less certain because the exact future number is unknown.
The difficulty in considering future you?
The present moment feels more real than the future. A dollar amount today feels concrete. A dollar amount five years from now feels abstract. Today’s paycheck and today’s expenses are immediate and exist right in front of us, making future purchasing power harder to picture.
As a result, we tend to place disproportionately greater value on immediate rewards and costs than future ones—a phenomenon known as hyperbolic discounting. Our perceived value of a future dollar decreases the further away it sits.
Hyperbolic discounting encourages us to focus on the immediate number instead of how that number will support us over time, overlooking the importance of protecting ourselves against predictable changes like inflation. This is what indexation helps us to solve by negotiating for future purchasing power.
This tendency shows up in our decision-making behaviors through a well-established concept in behavioral economics known as present bias. Present bias is our tendency to overvalue the immediate moment or give extra weight to what feels immediate, often at the expense of tomorrow, possibly making choices that our future selves may regret.
For example…
You choose a higher salary today with no inflation adjustment because the larger paycheck feels more valuable right now, even though a lower salary with annual cost-of-living increases would likely leave you better off over time.
Present bias says:
“That extra $10,000 today feels more important than protecting my purchasing power in the future.”
Over time, when present bias shapes our attention it can create a form of temporal myopia—a time-nearsightedness that obscures our awareness to long-term (financial) consequences. It describes how we see the future, as distant and psychologically less clear than the present. Your time horizon is essentially shortened.
For example…
When you’re signing a 5-year contract, you’re not thinking about what inflation could do because five years from now doesn’t feel real. Or you’re an employee negotiating your salary based on today’s paycheck, while giving little thought to how that salary will lose purchasing power over the next five years if it isn’t adjusted for inflation.
Temporal myopia says:
“I can’t see what this salary will be worth in the future, so I will focus on the value today.”
And then there’s the issue of who even is our future self. We often think about our future self as if they are a different person, someone we don’t fully identify with or connect with. This psychological phenomenon is known as future self-continuity—the perceived connection between a person’s present self and their future self.
A stronger connection and emotional bond encourage better long-term decisions, such as factoring in indexation. When that connection is low, one may prioritize immediate gratification over future benefits.
Hal Hershfield, a social psychologist at UCLA Anderson, found through the use of fMRI technology that one of the reasons people fail to make good positive choices for the long term is because they feel emotional disconnect from their future selves.
After asking research participants to describe their current selves, their future selves in 10 years, as well as describe other people, he discovered that when we think about our future selves, our brain treats that image more like a stranger than like us.
The neural patterns evoked from thinking about the future-self were most like the patterns that arose when thinking about another person.
Indexation is a way of overcoming our tendency to prioritize the present over the future. As you think about your next long-term financial decision, consider not only what the number means today, but what it will mean to the version of you who has to live with it in the future. Protect yourself against changes we know are extremely likely to happen.
Try using the following questions to help you think beyond the present moment and consider what your future self may need.
7 Questions to consider when making financial decisions or creating agreements:
If my future self woke up five years from now and had to live with this decision, would they feel protected or trapped?
What would this amount need to become in 5, 10, or 15 years to provide the same lifestyle?
What assumptions am I making about the future that may not remain true?
What parts of this agreement are flexible, and what parts are locked in?
Would this deal still feel fair five years from now?
Am I making a decision based only on today’s needs?
Does this decision increase or reduce my future choices?
Remember inflation and changing circumstances are normal parts of life. Plan accordingly my friend.
If you’ve made it this far, thank you for reading!!!
I hope today you’re met with kindness, especially from yourself.
💚💚💚
References
Bohns, V. K., & Flynn, F. J. (2010). “Why didn’t you just ask?” Underestimating the discomfort of help-seeking. Journal of Experimental Social Psychology, 46(2), 402–409. https://doi.org/10.1016/j.jesp.2009.12.015
Hershfield, H. E. (2011). Future self‐continuity: how conceptions of the future self transform intertemporal choice. Annals of the New York Academy of Sciences, 1235(1), 30–43. https://doi.org/10.1111/j.1749-6632.2011.06201.x
Hyperbolic discounting - The Decision Lab. (n.d.). The Decision Lab. https://thedecisionlab.com/biases/hyperbolic-discounting
Jacobson, K. (2026, April 26). The Future-Self problem in personal finance. Your Money Counselor. https://yourmoneycounselor.substack.com/p/the-future-self-problem-in-personal
O’Donoghue, T., & Rabin, M. (1999). Doing it now or later. American Economic Review, 89(1), 103–124. https://doi.org/10.1257/aer.89.1.103
Prior, M., Alsharawy, A., & Andrews, T. M. (2023). People are less myopic about future than past collective outcomes. Proceedings of the National Academy of Sciences, 120(52), e2310050120. https://doi.org/10.1073/pnas.2310050120
Wolfers, J. (2026, July 1). A user’s guide to living with inflation. Platypus Economics. https://newsletter.platypuseconomics.com/p/a-users-guide-to-living-with-inflation
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