In life there is fast money, then there is slow. When you suddenly see you’ve run out of nappies for your little one and need to grab some more, that’s fast money. You probably don’t want to spend days researching brands and prices or seeking advice on which to buy… you need them now!

Paying the bills, clearing the credit card, deciding to take a “staycation” over the weekend – those are all fast money decisions. They’re all the quick choices we make, often automatically, about what we spend.

Slow money, on the other hand, takes an entirely different way of thinking.

Choosing the right KiwiSaver fund for you, for example, is definitely a slow money consideration – one that needs a bit more comparison and deliberating. Refinancing a house is another, where seemingly small adjustments to your settings will end up meaning tens of thousands of dollars of difference through the years.

Then there’s retirement planning, which requires some of the slowest money thinking of all. But that doesn’t mean it can wait.

Grasshoppers and ants

Forgive my paraphrasing, but here’s my version of Aesop’s classic fable.

Once upon a time there was a grasshopper, enjoying himself in the summer sun. The “livin’ was easy,” as they say, and he had all he needed in that moment. He was set!

He noticed some industrious ants nearby, toiling hard to build up stores for the future. “Why would you ever?” asked the grasshopper. “You’ve got all you need right now.”

One turned his way to explain. “We don’t plan on working forever,” she said. “We’re growing wealth for when we’ll need it down the line.”

You know the ending here: winter comes, the grasshopper’s caught out, and the ants are the ones who are truly set for life. They had it sussed.

Fast money is the grasshopper, slow money is the ant – and both kinds of money need sorting out.

Slow money thinking

Nobel laureate Daniel Kahneman described two different ways that our brain works that have striking parallels with fast and slow money.

In Thinking, fast and slow, he called the first System 1: quick, automatic, frequent, emotional thinking that the brain uses for common tasks. (Think of grabbing those nappies.) System 2, on the other hand, is made up of logical, calculating, deliberate thoughts for infrequent tasks that require more effort. (Think retirement planning.)

If you’re driving on an open road, you’re cruising along on System 1 with little effort. When it comes time to squeeze into a tight spot to park, however, System 2 needs to kick in – the brain goes into a different mode, makes an extra effort and focuses to make it happen.

It’s the grasshopper and ant all over again, this time in our minds. And I see fast and slow money here as well – we all need System 2 to kick in for us to make long-term plans for our futures after paid work winds up. Since this is not something we do every day, System 1’s quick-fire automatic thinking won’t cut it.

Start by running some numbers

The good news is that it’s easy to get started: read up on this and run your numbers today.

Retirement planning is essentially figuring out how to fill the gap between what NZ Super provides and the lifestyle amount that we’d like to have. By running some numbers, we can estimate that gap and find ways to fill it. It’s time to get the ants moving in the right direction!

Beyond all the fast money moves we make day in and day out, we can have the security of knowing that the slow money is also steadily building in the background to where we’ll need it. 

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