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Save More Now, Spend More Later
This is a widespread concern in our culture, as the national savings rate is around 3% or less. This means that people are spending nearly their entire incomes in the present, while saving very little for the future. Many millennials have the mindset of spending money now, and thinking about saving for retirement later.
While this is the norm, young people should be doing the exact opposite: save now and spend later. Placing the emphasis on your finances in the younger years of your life, can set yourself up to not have to worry about money in your latter years. Not only does starting early give you the most time for your investments to compound, you’re also building positive habits at a younger age that you will use throughout the rest of your life to build wealth.
Having patience along your journey and the ability to delay gratification are key components of this. Investing is putting off spending now to receive something better in the future. Putting in the time, struggle and effort now can pay huge dividends for the rest of your life.
Right now when you’re younger you have more time and energy to sacrifice and put in the work. During our debt payoff journey, we kept ourselves going by remembering that we were making short term sacrifices for long-term freedom. Every extra debt payment we made and every extra side hustle paycheck earned meant we were buying more financial freedom.
We thought of our debt payoff as a stage of life, one that wasn’t going to last forever, and one that we wanted to put our heads down and power through as quickly as possible. Now the weight of debt is off of our shoulders, and the additional freedom has been completely worth the short term sacrifices we made along the way.
Stanford Marshmallow Experiment
My favorite example of delayed gratification is the Stanford marshmallow experiment, which was a series of studies conducted in the late 1960s and early 1970s at Stanford University. These studies involved hundreds of children, ages 4 or 5. Each child was presented with a choice, either they could have one marshmallow right away, or if they waited for a short period (about 15 minutes) they would get 2 marshmallows.
The video is hilarious and shows many of the kids struggling with this dilemma or whether to chow down on the treat right away, or wait for the extra reward.
In follow-up studies, the researchers found that children who were able to delay gratification and wait for the second marshmallow, tended to have better life outcomes: measured by SAT scores, educational attainment, body mass index (BMI), lower levels of substance abuse, better responses to stress, and other life measures.
James Clear also has a tremendous post about this study and the relationship between delayed gratification and success.
The takeaway? Whether it’s marshmallows or money, we benefit long-term by delaying gratification and not overindulging in the present.
Balancing the Short Term vs the Long Term
Even though I would strongly advocate for delaying gratification and saving more money, there needs to be a balance between enjoying the present and preparing for the future. You don’t want to delay your dreams and get caught waiting around for life to start, you need to find contentment along the journey. There are stories of people who saved diligently for retirement, and then died a few months after leaving work. This is a scary thought, and is one of the reasons we spend money on travel and new experiences in the present, while we’re young and able-bodied. Tomorrow is never guaranteed.
We also want to be prepared for the future. This reduces stress and increase our options. We want to travel in our old age and spend time with our grandchildren. Without saving now, we’ll have less choice in how we spend our time later.
It takes time to find the right balance, and everyone is different. This is something I still struggle with sometimes. No one can decide this balance for you, it’s up to you to figure out ways to enjoy your life in the present while still saving money and paying off debt to give yourself more options in the future.
Saving for the future doesn’t mean you can’t enjoy your life now. My wife and I travel using travel rewards, enjoy going on hikes, homemade dinners and game nights with friends, among other low cost forms of entertainment.
Know Your Personality
Delayed gratification comes naturally to some people, while others struggle with it. I’ve always been more of a saver. From a young age I learned to think of money in terms of how long it took me to earn it. For example a $14 dinner would be about 2 hours working my minimum wage job. I learned to weigh my purchasing decisions with that in mind.
Saving money comes naturally to me, and I’m a long-term thinker. In this way, I’m more inclined to delay some gratification in the present to be better prepared for the future. Now, if only I could have this same discipline when it came to passing up desserts!
On the other hand, some people are more inclined to focus on the present and think more in the short-term. This can lead to an enjoyable present day, but could be done in the expense of long-term financial security.
Putting This into Practice
One practicable way to take a more long-term approach and practice delayed gratification can be done when you get a raise or bonus at work. For most people, when income increases, this is a ticket for spending to increase. This phenomenon is called “lifestyle inflation” or “lifestyle creep.”
Instead of inflating your lifestyle, the next time your income increases, take advantage by increasing your 401k contributions and/or set up an automatic transfer of the extra money into an online savings account. You had already been living on your previous salary before, so you shouldn’t feel anything different if you put the majority of your raise into savings and investments.
While simple to put into place, many people don’t do this. This one action can set you apart from the masses in building wealth, increasing your financial flexibility, and moving up your retirement date.
Saving Money Equals More Opportunities
Overall, we might not know where we want to end up long-term. It’s likely your goals will change over time, you may pivot in your career, and your interests evolve. However, by investing money now you’ll be able to build wealth, leading to more potential opportunities available to you in the future. Whether you choose to move across the country, travel to far away places, change careers, or retire earlier, having more money gives you more options. The money you save now by practicing delayed gratification will pay huge dividends in the future.
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