The following article is from Mike, our staff writer.
Are you the type of person who is very impulsive with money? Do you spend money faster than you can earn it? If so, your spending habits could be keeping you from reaching your financial goals. Being impatient with money may cause you to spend more than you earn using credit cards, dig yourself into debt, and deal with the stress that comes along with owing people money.
If you want to be financially successful you need to master the art of delayed gratification. In other words, you need to be able to resist the temptation for an immediate reward in order to receive a much larger reward later.
For example, I could drive to Costco right now, whip out my credit card and come home with a 70 inch TV right now. But unless I’m able to pay off that purchase in full when my credit card bill arrives I’m going to be stuck paying interest on it. If I end up paying only the minimum amount due each month I’ll end up spending far more than the purchase price of the television itself. Instead, it makes more sense for me to save my money until I have enough to pay cash.
Another problem with letting your money burn a hole in your pocket is that you’ll face diminishing returns. Each time you make an impulse purchase you’ll experience a little high, but with each new purchase that high will go away faster and faster.
For example, let’s say I did go out and buy that 70 inch television. At first I’d be really satisfied with my new purchase, but before long I’d get used to it and it wouldn’t seem special anymore. And once I saw my neighbor’s new 80 inch TV, mine just wouldn’t be good enough anymore. This is exactly how people get caught in the trap of trying to keep up with the Jones, and that’s a surefire way to fall into debt and lose control of your finances.
Should You Delay Your Retirement Too?
Since the main theme of this blog is about retiring early, it makes sense to wonder if the concept of delayed gratification should apply to retirement too. After all, delaying retirement does have its benefits as you may qualify for a higher Social Security payout and your nest egg will last longer since you won’t have to tap into it until later. On the other hand, life is short and you don’t want to delay your retirement so long that you won’t have time to enjoy it.
For a real life example, take my father-in-law. He worked for the US Post Office for many years and he filed his retirement paperwork the minute he reached retirement age. He had enough and didn’t want to work anymore. Within just a few months he regretted the decision and wished he had stayed on another year to eliminate his debt before retiring.
He ended up getting a part time job as a crossing guard to help supplement his income, which wasn’t bad because he actually didn’t mind the job and he got some extra exercise. And at least he got to enjoy a little bit of his retirement before he passed away.
Have you mastered the art of delayed gratification? What tips do you have for people who still struggle with impulse purchases?
Photo Credit: flickr RobotSkirts