One Trick for Your Finances

Financial freedom is a popular topic that many people idolize. A number of financial freedom/entrepreneurial books over the years and the internet have changed the way in which people can access information and approach making money. It has created new opportunities for people to generate an income which has led to the rise of e-books, e-courses, dropshipping, Instagram influencers, and all manners of monetizing on the web. The internet has given people the opportunity to create value and go direct to customers at scale which is incredibly powerful. The downside in this is that just because there are more ways to generate income the discipline and basic principles of running a business still apply.

Financial Glass - Stacked Rocks
Photo by Nathan Dumlao

One of the most important traits successful entrepreneurs have is the ability to have patience in the short-term. Being able to sacrifice over the short-term will allow you to win bigger in the future. There is a game called Delay of Gratification or D.O.G. which has been shown through studies of children who were successful to highlight their future prospects in school and their careers. The game is very simple. It is typically played with a sugary treat such as marshmallows or M&Ms for example. Children are given a choice where they can either have say 2 or 3 marshmallows now or if they wait a set amount of time can have double the amount. The children are then left alone with the candy and a clock that shows the time is set in front of them. The kids who are able to resist the urge to eat the treats left in front of them are then rewarded with the additional candy at the end of the time. Those kids who wait are statistically at an advantage in the future to be successful in school and their careers.

Financial Glass - Kid with Candy
Photo by Pete Wright

You may be thinking – great what does this have to do with running a business or financial freedom? Quite simply the D.O.G. dilemma is presented to us every day whether it is in the form of choosing not to impulsively buy that shiny new object because you have to have it or if it is passing on your favorite guilty pleasure dessert. The discipline to recognize that short-term pleasure may satisfy you temporarily but may result in you missing out on a greater return in the future is a real challenge. We often don’t think in terms of short-term versus long-term on everyday decisions, but they can really add up over time. Remembering that sometimes the two are not aligned is very important for your personal finances, health, and overall well-being.

Financial Glass - Hourglass

How can we better recognize when our short-term needs may be in conflict with our long-term goals? Well, the good news is technology can really help us here through automation and accountability. From a financial perspective, you should always pay yourself first. What I mean is whether you are an employee, freelancer, or business owner you should always set aside a portion of your income for yourself. This is before you pay your rent/mortgage, pay your phone bills, or you treat yourself to a night out with friends and family. Set aside at least 10% (if you can’t afford that right away start with 5%, but work your way up to at least 10% over time) in a separate account that you don’t touch. Congratulations you have made the first step in your journey to financial security.

If you are unsure how you can start setting aside 10% of your income or are worried you may forget or choose not to one month remember DOG and automate where you can. An easy way to overcome the DOG challenge is to utilize automation. If your employer has direct deposit – see if you can have 10% of your pay go into this special account you have created. At first, it may be an adjustment, but living off of 90% of your income is very doable over time. Another option is to go to your bank and set up an automatic transfer to take place between your main spending account to your “pay yourself first account.” When you automate your finances to make the tough D.O.G. decisions you will free your willpower and set yourself up for future success.

Financial Glass - Automate Finances

For those entrepreneurs and business owners, it is just as important for you to apply this same principle to your business. Creating a pay your business first account that is separate from your operating account to ensure you are building capital reserves to be reinvested back into the business. There is no one simple trick or standard formula for success, but ensuring you are weighing the short-term vs. the long-term consequences of your decisions will allow you to make more informed choices. Ultimately the goal of delay of gratification is to help us as human beings be able to weigh different outcomes over time.

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