Instant gratification is one of the most notorious phrases in the world of personal finance.
And delayed gratification is the second-most glorified phrase, right behind ‘compounding.’
Instant gratification (IG) is our desire to have things, experiences, and products without delay. Indulging in IG hurts our savings. If we are spending a lot on things we want today, we are left with less (or no) money for the future.
Delayed gratification (DG) is often described as the capacity to suffer today so you can get a bigger reward tomorrow.
There is the famous “marshmallow test” which shows that people who can resist the temptation for an immediate reward and wait for a bigger reward later tend to do well in life.
Delaying or sacrificing certain pleasures today could put us in a much better financial position over the long-term.
The Scale of Gratification
We care about both the present happiness and the future. But some of us give instant gratification far more weightage than the delayed gratification.
And there are others so obsessed with delaying gratification that they feel guilty when they spend money on the present happiness.
Neither instant gratification nor delayed gratification is bad. What really affects our happiness and financial well-being negatively — both in the short-term and long-term — is the extreme ends of IG and DG.
To illustrate my point, let me introduce you to the Scale of Gratification.
Both the IG Extreme Zone and DG Extreme Zone are dangerous — one for the future and another for the present.
People in the IG Extreme Zone spend most of their income on experiences and things that feel good in the present…saving negligible money for the future.
They might even borrow to get through the month. The IG Extreme Zone people often carry a balance on their credit card and pay a hefty interest month after month. They take one of those easy loans to travel and explore.
The IG Extreme Zone people struggle to save for the future self. It becomes even harder if they have an exciting social activity or purchase just around the corner. And there is always an exciting activity or purchase on the horizon.
On the other hand, people in the DG Extreme Zone make several sacrifices in the present. They are locked in the ‘Prison of Frugality’.
They avoid going out with friends because it would cost money. They don’t take vacations. When they do spend, part of them feels guilty for walking out of the prison.
People in the Prison of Frugality prohibit themselves from doing things they enjoy or dream of doing.
We are different…and that’s alright
On the Scale of Gratification, the weightage you give to instant gratification and delayed gratification could be different from me.
Your choices could be here:
Mine could be here:
And that’s OK. Our life choices are different. Our expenses and income levels are different. Our priorities are different.
We can enjoy the present and prepare for a financially better future without having to live in the either Extreme Zone.
Both you and I’ll do fine —in the present and future — if we do a few things right and avoid a few blunders.
Here are the basics that I believe we should get right–whether you are more inclined towards IG or DG.
1. Build financial security
Financial security impacts our happiness both in the present and future.
Remember how embarrassing it feels to borrow from your friends or parents to cover an unexpected expense?
Without the financial foundation, you’ll feel embarrassed every time you go in front of your friends with the intent of borrowing again. After a few times, even your friends will start avoiding you. And you’ll be tempted to get into credit card debt/personal loans to cover the expense.
If you save just a little bit every month from your paycheck, you won’t be begging your friends or swiping that credit card when a setback occurs.
2. Start it today
It doesn’t matter whether you are in your 20s or 50s, it’s wise to invest at least 10% of your paycheck for the future. If you are just starting out, you can take an automatic route such as SIP.
If you are in your 20s, you are probably making less than people who have been working for 10 or 15 years. But you have one advantage that they don’t. You have 10-15 years of extra time for your money to compound.
Let’s say you can’t do an SIP of ₹10,000 per month. You have your travel plans. Social obligations eat up a few thousands out of pocket every month. Life is expensive. And your meager salary is not enough to meet all the costs.
Why not start with just ₹1,000 a month? And maybe increase it when you get a promotion or salary hike?
Your savings are also a form of spending…the only difference is you are going to spent it to better your future.
3. Spend, but mindfully
We can’t have everything. But life would feel empty if we deprive ourselves of the things and experiences that bring us joy.
Mindful spending involves identifying the things and experiences that bring you happiness. Create a plan and spend on them guilt-free. And then ruthlessly cut costs on things that don’t matter to you.
Love to travel? Set aside some money every month for traveling. Enjoy video games? Dedicate a small percentage of your paycheck to buy consoles and games. You get the idea.
You may have to wait a few additional months for the thing you want, but it will be worth it.
I know from experience that anticipation of an upcoming purchase/experience gives us as much happiness — if not more — as the purchase itself. Savour the anticipation. Researchers have also found evidence for the same.
4. Avoid consumer debt
Taking on debt for current consumption falls in the IG Extreme Zone. It robs you of your mental peace. The exorbitant interest minimizes your capability to invest in the future.
While using debt to buy stuff feels amazing when you are buying it, paying EMIs month after month could be the real pain in the ass. If a large portion of your paycheck goes towards EMIs, it would be incredibly difficult for you to withstand a loss of income.
If you are an instant gratification junkie, avoid using credit cards altogether. Because you are extremely vulnerable to getting into debt for IG.
5. Don’t keep all the happiness for the future
People in the DG Extreme Zone live a miserable life in the present and keep all the happiness for an imaginary future. Trying to improve our future doesn’t mean we should forget to enjoy the present.
Why do people keep delaying their gratification? Maybe they are stuck in a terrible job…and their strategy to get out is to work hard and save hard for the next 10–15 years to achieve financial independence.
Or maybe they have read so many articles about the power of delayed gratification and compounding that they don’t see a one-rupee coin as one-rupee coin. They see it as a ₹100 note 30 years from now.
What’s the use of having boatloads of money in your 80s if you didn’t enjoy the best (and healthiest) years of your life?
Your income, expenses, and plans could be different from mine. But here are a couple of things I think we both agree on:
- There is no point obsessively worrying about the future if it makes your present miserable.
- Discounting the future and spending 100% of your income for the present happiness is like playing with fire.
There is a sweet spot between the two Extreme Zones. And that is different for each of us. Find where that sweet spot is for you and you’ll be able to make choices that are good for you today, tomorrow, and decades later.
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