Lesson 5b: Delayed Gratification
how to become better at saving money
Investing is about delayed gratification, both
in terms of waiting while you save enough money to invest
and waiting for your investments to pay off. Yet, waiting for results
is hard to do in our society where instant gratification is
things like FedEx,
fast food, and instant messaging. The advantages of being
patient and waiting (and saving) can be seen even in the early stages
of childhood. In
a study by Stanford University, children were given one marshmallow
and were told if they waited to eat it until the instructor came back,
they would be given two marshmallows. Only, 1/3 of the children
waited. The study showed that for the children that waited, they
had better health, higher incomes, and more successful marriages when
they grew up compared to the other children. Delayed gratification
(and investing) can benefit you in the same way.
The need for investing is becoming more important because
today's workforce is taking on more responsibility for their retirement
as Social Security and corporations pension plans are being cut back. And,
as more responsibility is being place on individuals for their
retirement, future retirees are
however more likely to live for today and not for tomorrow. According
to the Employee Benefit Research Institute, 59% of today's employees
are more likely to financially
live for tomorrow while 30% of the workers are
more likely to financially live for today which doesn't sound that
when asked to compare themselves to 5 years ago, 51% said they are more
today. With the baby boomers getting closer to their retirement
age, is this the right trend?
So how can you become better at saving money?
Understand that there is a future payoff for
delaying your reward.
Studies have shown that with higher levels of retirement education,
a participant is more likely to increase their 401(k) contribution
level. So review again the retirement section and investing
section on the need to save.
Know that your situation can be different.
Part of savings is our internal dialogue. It is a knowing that
you can save with what you have. Many put off saving until their
finances get better, thinking that they are already stretched too thin. It
is knowing that you can learn to save with what you have now rather
than using reasons on why
you can not. List the reasons why you believe you are not
able to save. Look
at these reasons and see if you can make a counter argument. If
it appears hard to make ends meet, find
others who you can use as examples of how to save. For example,
you can read about ordinary
people who saved millions.
Change your thoughts about material possessions.
Do you feel a need to
have things in your life? Many prosperity books encourage
having abundance, having what you want and deserve. It is
about getting a bigger house, nicer car, and extravagant vacations. And,
when you have a bigger house and nicer car, will it be enough? Or,
will you then want a house on the ocean? There are others
who feel that they are just getting by with what they
have today. They live paycheck to paycheck, no matter if they
earn $25,000 or $75,000.
It is about changing thoughts of possessions (things
like my sports car or my dream house) into objects (a car that
gets me around and a house that shelters me). Possessions
are things that you reach out to grab for and then hold on tightly
to. It is harder to give up a possession. Objects are things
that come in and out of our lives without attachment. It is
easier to exchange a luxury car for savings if you are not
attached to the luxury car. Yet,
this means overcoming marketing and society pressures that take objects
(cars and houses) and make them possessions
that we must have today. Do we really need that 4,000 square
feet house when our parents grew up in
a 1,500 square feet house? Do we really need the fuel-inefficient
luxury SUV instead of a practical sedan?
Distinguish between true wants and needs.
Many prosperity courses teach creating what you want today. So,
why am I talking about delayed gratification which is about tomorrow? What
delayed gratification is about is understanding that you have all that
you need in this moment. Many people acquire possessions to try
to fulfill a need today. Yet, many purchases are about trying
to cover up a perceived need of the ego (the bigger SUV). How
many people without children do you see driving down the street with
an SUV or minivan? Was this purchase out of need or perceived
need created by the auto industry (buy it for its ruggedness and safety)?
Delayed gratification is about letting things into our lives at the
right time instead of trying to grab at the latest fads propelled by
excellent marketing. It is about if a nice car comes into your
life that is fine if it does not come at a cost of mortgaging your
future just to fulfill a perceived need.
Saving for retirement is not only about knowing your investment
is about being objective about satisfying our instant
wants and needs and living for today.
Exercise: Review some of
your recent purchases.
- Were these purchases out of need
or a want?
- Did you review the impact the purchase would have on your savings
- How much did marketing play an impact in your purchase? Be
honest because most purchases are influenced by marketing to
a certain extent (marketing creates and enhances the need to