Many times when you read personal finance blogs everything you read is about not doing this or that, never spending money, and generally living like a hermit. That’s not my idea of a great life.
Is it yours?
Probably not. And that’s okay. That’s great, actually. No one wants to live in a shack in the woods with no electricity and never speak with anyone from civilization.
On the other hand, you can’t live like a rockstar all of the time and just spend money on whatever you want, racking up an unsustainably high level of credit card debt. If we are honest with ourselves I think we all lean more toward the rockstar lifestyle than the hermit lifestyle. And that’s a problem.
Some reports show that 7 out of every 10 households in the United States live paycheck to paycheck. That means if something happens with your employment — whether that is a layoff, a furlough, or you get fired — your family is immediately at risk of losing everything they own to debt collectors and bankruptcy.
What leads to this lifestyle? A contributing factor is often not understanding delayed gratification.
What is Delayed Gratification?
In today’s “I want it now” culture, the principle of delayed gratification seems like a relic from the past. But at its core, it’s straightforward: resist the urge to get that shiny new thing now and instead, wait until you can truly afford it.
Practically speaking, instead of impulsively maxing out your credit card for that brand-new TV, you’d save a little every month until you could buy it outright. And if you’re a credit card aficionado? Sure, swipe it, but ensure it’s cleared by the end of the month. Think of it as turning your credit card into a debit card without the crippling interest. (You can still use the credit card to buy whatever it is you want as long as you pay the balance off that month; essentially treating your credit card like a debit card.)
How Can Delayed Gratification Make Me Wealthy?
This process of delaying your gratification can save you thousands of dollars per year depending on how much money you are spending that you can’t afford to spend.
Delaying gratification by avoiding credit card debt will save you on high-interest charges for whatever you spend and hold a balance on the card. If you put $5,000 worth of home theater spending on a credit card — like a television, sound system, and so on — you will end up regretting it. A credit card balance of $5,000 at 18% with a 3% minimum payment will have an initial minimum payment of $150. If you pay $150 per month on the balance it will take you 3 years and 10 months to pay off the full debt. That is 46 months of payments. During those 46 months, you will not only pay back the $5,000 principal balance but also an additional $1,836 in interest charges. You will essentially buy that home theater system and spend an additional 36% on another home theater system.
Alternatively, you could set aside that $150 per month for 34 months and pay cash for that $5,000 worth of home theater equipment. Yes, that is more than 2.5 years away, but you get back 12 months of payments as well. If someone offered to save you over $1,800 on a $5,000 purchase, wouldn’t you take it?
4 Steps to Wealth through Delayed Gratification
Embracing the principle of delayed gratification is akin to sowing seeds today for a fruitful harvest tomorrow. Here are four pivotal steps to set you on the path of sustainable wealth and financial freedom:
1. Stop Spending Money You Don’t Have
This step is the cornerstone. To put it simply, don’t splurge if your pockets aren’t deep enough. By curbing your impulsive spending habits, you pave the way to rectify your financial health.
- Instant Gratification: The unseen trap. By regularly spending beyond your means, you plunge deeper into a debt pit, making recovery a daunting task.
2. Get Out of Debt
With frivolous spending in check, your next mission is to eradicate debt.
- Start Small: Even an extra $20 monthly towards your debt can make a difference. As your restraint from instant gratification frees up more cash, redirect these funds towards clearing your liabilities.
- No Spare Change?: If your monthly budget is too tight even after curtailing unnecessary expenses, it’s time to explore avenues to increase your income or further reduce costs.
3. Wait Before You Buy
Being debt-free (excluding mortgages) grants you a unique freedom: the power to choose.
- The Temptations: Thanks to clever marketing, even mundane items can seem irresistible. Resist the pull. List down items you desire, but ensure you’ve the funds before making the purchase.
- Cash First, Buy Later: If you’ve just exited the debt zone, chances are you haven’t accumulated significant savings. So, list, wait, and most importantly, stash that credit card.
4. Save Up for Your Goal, Then Buy It
Here’s where the magic of planning comes into play.
- Budgeting for Desires: Know the cost of your desired item and diligently set money aside each month. If a product costs $1,200 and you save $100 monthly, exercise patience for a year before reaping your reward.
- Prioritize Savings: Ensure you’re not compromising essential savings for momentary wants. For instance, setting funds aside for emergencies should be paramount over luxury purchases.
Table Summary: Building Wealth with Delayed Gratification
|Stop Spending Money You Don’t Have||Curb impulsive buys||Immediate||Healthy Financial Habits|
|Get Out of Debt||Allocate extra funds to debts; increase income or reduce expenses||Variable||Debt-free Existence|
|Wait Before You Buy||Create a wish list; purchase only when funds are available||Based on savings rate||Informed Purchases|
|Save Up for Your Goal, Then Buy It||Set monthly savings targets; prioritize essentials over luxuries||1 year (for $1,200)||Planned Purchases & Secure Savings|
By following these steps, you’re not just buying items. You’re investing in your financial future, ensuring a life of comfort and security. So, are you ready to start this journey?
The Hidden Advantages of Delayed Gratification
While the primary goal of delayed gratification is to foster better financial habits and promote savings, there are more subtle yet impactful advantages to adopting this approach. Let’s dive deeper into two such perks:
1. Price Reduction Over Time
When you decide to postpone a purchase, there’s a very real possibility that the item’s price will decrease over time. This is particularly noticeable in sectors like:
- Rapid Innovations: The technology industry, for instance, is constantly evolving. This year’s top-of-the-line model may be replaced by a newer version the following year.
- Price Dynamics: As the newer versions emerge, older models typically see a drop in price. So, if you remain committed to your initial choice, you might acquire it at a fraction of its original price.
- Double Savings: Not only do you save by waiting and purchasing the item at a reduced price, but you also save the amount of time required to gather the funds for it.
2. Realizing True Needs vs. Passing Desires
The idea of “needing” a product immediately can often be a mirage, a consequence of persuasive marketing campaigns. However, delayed gratification provides clarity:
Marketing’s Illusion of Urgency:
- Now or Never: Companies invest heavily in creating a sense of urgency, persuading you that an offer is fleeting or a product indispensable.
- The Reality Check: By practicing restraint and waiting, you give yourself the time to reflect. Was the urgency genuine or merely a ploy? Was the product truly indispensable or just a passing whim?
- Changed Perspectives: After a few months of waiting and saving, you might discern that the item you were craving isn’t actually essential to your life. This revelation is a win-win: you save money and gain insight into your genuine desires versus fleeting temptations.
- Avoiding Impulse Purchases: By resisting the initial urge to swipe that credit card, you safeguard yourself from potential buyer’s remorse and unnecessary expenses.
Conclusion: The Power of Patience in Purchasing
In essence, delayed gratification isn’t merely a fiscal discipline; it’s a transformative mindset. It’s about understanding the difference between short-lived pleasures and lasting contentment. By embracing this principle, you not only strengthen your financial foundation but also cultivate discernment in your purchases, leading to more meaningful and satisfying consumption. Remember, in the long run, it’s not just about saving money; it’s about investing in genuine contentment.
And that’s the best way to save cash with delayed gratification.