One Trick for Your Finances – Delay of Gratification

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Photo by Pete Wright

The delay of gratification is an old trick that can change your financial future. Financial freedom is a topic that many people idolize. A number of financial freedom/entrepreneur books discuss new ways to make money. Simply the internet changed the way in which people access information and make money. The internet created new opportunities for people to generate income. This has led to the rise of e-books, e-courses, dropshipping, Instagram influencers, and all manners of monetizing on the web.

The internet gives people the opportunity to create value and go direct to customers at scale which is incredibly powerful. The downside is that while there are more ways to generate income the discipline and principles of running a business still apply.

Financial Glass - Stacked Rocks

A game for D.o.G.s

One of the most important traits successful entrepreneurs have is the ability to have patience. 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. Studies of children show that delay of gratification impacts 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. Children are given a choice. Either they can have 3 marshmallows now or if they wait a set amount of time they can have double the amount. The children are then left alone with the candy and a clock. The kids who are able to resist the urge to eat the treats are then rewarded with the additional candy. The children who wait are statistically at an advantage in the future to be successful in school and their careers.

One Trick for your finances- delay of gratification - Kid with Candy
Photo by Pete Wright

Why Should You Delay Gratification?

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. Sometimes 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 reconcile short-term pleasure versus missing out on a greater return in the future is key. It is a tough challenge you face every day. Often we don’t think in terms of short-term versus long-term, but those decisions 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 - Delay of gratification Hourglass

How Can You Develop Good Delay of Gratification Habits

How can you better recognize when your short-term needs may be in conflict with your 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. No matter if 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% in a separate account that you don’t touch. If you can’t afford that right away start with 5%, but work your way up to at least 10% over time. Congratulations you have made the first step in your journey to financial security.

Hacking the D.o.G. game

If you are unsure how you can start setting aside 10% of your income or are worried you may forget, don’t fret. An easy way to overcome the delay of gratification challenge is to utilize automation. If your employer has a 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. Set it up to be between your main spending account to your “pay yourself first account.” After you automate your finances to make the tough D.o.G. decisions you will free your willpower. Ultimately this will set yourself up for future success.

Financial Glass - Automate Finances

For entrepreneurs, 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 is the first step. It is important to ensure you are building capital reserves to be reinvested back into the business.

Despite the power of delay of gratification, there is no one simple trick or formula. But ensuring you are weighing the short-term vs. the long-term consequences of your decisions will allow you to make better choices. Ultimately the goal of delay of gratification is to help you optimize for your long-term well being.

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