The Art of Delayed Gratification and How it Can Make You Wealthy
We’re not born patient.
Patience isn’t exactly something that’s culturally reinforced either.
I’ll admit, it’s nice when things come quickly, but wealth rarely appears with rapidity.
Unless you have the benefit of a head start, the journey to substantial wealth will take years of discipline and patience in order to harvest the near-miraculous effects of compounding interest.
This postponement of a reward for the sake of an even greater reward later is known as delayed gratification.
Delayed gratification is a critical mindset to master if you want to accumulate wealth because of the way investments work over time.
There are get-rich-quick schemes to be sure, but the success rate for the slow and steady approach is unquestionable and highly secure.
In short, there isn’t a better or more assured path to wealth. Let’s unpack the concept of delayed gratification further to make sure we’re using it to help us reach maximum success.
The Stanford Marshmallow Experiment
In 1972, Stanford psychologist Walter Mischel kicked off a psychological study focused on delayed gratification by offering a group of children a choice.
Option 1: A single marshmallow that the child was allowed to consume immediately, or;
Option 2: sit alone in the room with the marshmallow without eating it until the researcher returned. If the marshmallow was still uneaten, the child would be given a second marshmallow to eat.
In the years that followed, researchers found that the children who were able to wait longer for a reward (that is, those who practiced delayed gratification) tended to also have better life outcomes in the form of higher test scores, higher educational attainment, and lower body mass indices.
In summary, good things came to those who waited.
A second, larger study confirmed the outcome of the first, but attributed half of the result to the economic status of the individuals studied.
In other words, those who were raised in more positive economic circumstances were more likely to see such successes repeated in their own lives.
I’m not sure if this second study was attempting to suggest that nurture (the environment people grew up in) was more important than nature (the personality people are born with) when it comes to developing healthy delayed gratification practices, but the background isn’t relevant for this post.
Regardless of whether you had exemplary financial tutelage growing up or not, you must master the art of delayed gratification to secure wealth for yourself in the future.
In other words, if you had crappy financial parenting growing up, would you rather moan about it and be poor or work a little harder to figure it out and build wealth?
The choice is yours.
Impulsiveness: The Enemy of Wealth
If delayed gratification tends to lead to greater wealth, then perhaps you would assume that impulsiveness would have the opposite effect.
And you’d be right.
Rarely do spendthrift personalities co-exist with deep pockets. The two aren’t necessarily mutually exclusive, but they don’t work very well together either.
The primary reason impulsiveness is so devastating to wealth is it causes one to substitute the preeminent importance of saving with an opportunity for momentary pleasure now.
We cover this indirectly in our starting point on the Next Dollar Roadmap which is creating your first budget.
In that post, we talk about making saving and investing a priority. Another common way of saying this is to “pay yourself first.”
Impulsiveness, on the other hand, says to indulge yourself first. On the surface, the two concepts may appear similar, but they are in fact very different.
Impulsiveness trades financial options later in your life for a moment of fleeting joy now.
Delayed gratification trades a moment of fleeting joy now for financial freedom later.
Impulsiveness provides an immediate benefit at the expense of an exponentially greater benefit later.
Delayed gratification postpones the immediate benefit for a benefit multiple times larger later.
So, where does impulsiveness most often attempt to knock you off track? Is it when friends invite you out for an expensive weekend trip? Is online shopping your weakness?
Keep reading for more about how to defend against the corrosive effects of impulsiveness.
Kids & Corvettes
If you’ve read many posts, you probably know we have two children. To an impulsive child, nearly every shiny thing is something worth trading money for.
There have been periods in which we’d accumulated so much kid stuff that our house was overrun with toys innumerable; many of which spent months without so much as a glance, much less any significant playtime.
When the time came to purge many of these long-forgotten toys, our kids threw a bit of a fit. We weren’t totally caught off guard, but the process was more challenging than we had imagined.
Thankfully, that was a learning opportunity for us too. We had spoiled them a bit.
From then on, we’ve pretty well forced our kids to wait a while after making a request before it’s fulfilled. This cooling-off period serves as a pretty good test as to how important the latest “must have” really is.
Over time, we’ve begun to notice them making wiser and wiser choices about how they use money on their own. By forcing them to wait, it seems they’ve learned there is some benefit for them personally.
Another example of this in my own life is the 1967 Chevrolet Corvette.
I was born in 1981, but I have always loved Corvettes. In particular, the C2 is the body style I covet most. It’s just a beautiful car and 1967 was the year chevy perfected the C2.
In any event, when I was in my twenties, I had a deal with myself that if I ever had enough wealth to buy one, I would.
I’m in my forties now, and I suppose I could go buy one. However, I don’t really want to own one anymore.
It’s not that the car doesn’t appeal to me any longer, because it does. It’s the impracticality of it that I find undesirable.
Insurance, a high price tag, an extra garage space, and only two seats. Not to mention a very thirsty engine with little in the way of modern conveniences to enjoy.
I guess I grew out of it.
Thank God I never pulled the trigger on one. Thank God I wasn’t impulsive.
On the low end, it looks like about a $65,000 car now. Without any additional saving, $65,000 would turn into $469,362 in 20 years.
That’s one pricey ride.
Methods for Implementing Delayed Gratification
Curt, that’s all fine and dandy, you say, but what if I have the self-control of a teenage fashionista in Saks with daddy’s platinum credit card?
Well, even though I’m sure you’re not here for psychological advice, we do have some suggestions to help you tame your inner-indulgee.
1) Set Timely Goals
Our first small piece of advice would be to set goals for yourself that are obtainable in relatively short periods of time.
The old adage that an elephant is eaten one bit at a time may be true, but that doesn’t mean trying to manage the whole task in one sitting won’t give you a headache and a serious case of indigestion.
Instead, set smaller, easier-to-manage milestones on a monthly or even weekly basis so you can measure progress and success regularly. This will help provide some momentum toward larger goals while giving you room to enjoy yourself a bit after reaching an interim goal.
For example, once you’ve set aside your desired savings amount for a month and you’ve met all of your other budgeting goals, maybe treat yourself a bit with the excess. (Though, you might want to already have some fun money in your budget if you think you’ll need it.)
2) Give yourself small rewards along the way
In the spirit of psychological boosts, you should take a minute to pat yourself on the back as you make progress in delayed gratification.
The delay part of gratification can really wear you down if there isn’t an occasional opportunity to enjoy the journey.
The frequency and level of reward really depend on the individual. Some can plod along toward a goal for years without so much as a minute to stop and smell the roses.
Others have a hard time seeing the point if the grind is too long.
The trick is finding the right balance for yourself, but remember the more patient you can be the quicker you’ll get to your desired endpoint.
3) Track your progress so you can reinforce its success
We’ve already referred back to our budgeting post, but it keeps popping up because it’s so closely tied to financial success.
Having a budget forces one to record their spending. This record gives us something to look back on and measure progress.
Additionally, you should keep and update a net worth statement from time to time.
Calculating your net worth provides you with the consummate financial well-being score. Done over a period of time, it will provide a clear picture of progress.
4) Save before you get your money
If you have a difficult time not spending money as soon as you get it, try saving it before you get it.
Employers generally have one or more savings plans that allow payroll deductions in order to fund them.
If a portion of your income has already been put into a savings vehicle before it hits your bank account, it’s certainly more difficult to blow it on frivolous purchases.
There are also options to set up automatic withdrawals with brokerages that serve as custodians of various types of investment accounts.
While not as proactive as payroll deductions, this automatic investing still takes some of the self-discipline for remembering to fund accounts regularly off your back.
5) Have a cool-down period for purchases
This may be the easiest way to build self-discipline and guard yourself against impulsive buying at the same time.
By imposing a mandatory cool-down period, you give yourself time to replace the emotions driving a purchase decision with reason. Often, the time to reflect will spare you the unfortunate effects of buyer’s remorse.
The most common duration I’ve heard for this is 24 hours, but I’d consider extending the period for more days or weeks if the purchase is large.
A desirable side effect of this practice is growth in self-discipline. I wrote about my kids making progress in this regard earlier, but the effects are not necessarily limited by age.
If you know you have a weakness for impulse buying, start here to stem that behavior. What’s the harm in sleeping on it?
Conclusion
Just the sound of the words “delayed gratification” may bring on a slight swoon of depression, but fear not. Delayed gratification is actually your biggest psychological ally for financial success.
Practicing self-discipline and exercising firmness against impulse buying will help you build a natural tendency for saving and investing.
