Delayed gratification in financial planning has created an impression that the ultimate gratification is achieved further down the road - when one is retired. This may not work for many since this asks us to live for the future and 'forsake' the present. Instead of delaying, plant gratification. Don't feel guilty; plan to splurge and reward yourself along the way to keep yourself motivated. The key word is plan.
Delayed Gratification in Financial Planning
Delayed gratification, or deferred gratification, is the ability to resist the temptation for an immediate reward and wait for a later reward. Generally, delayed gratification is associated with resisting a smaller but more immediate reward in order to receive a larger or more enduring reward later (Carducci, 2009).
Instead of just delaying, have a concrete plan in your financial planning to reward yourself handsomely in the not so far away future. Don't feel guilty about it. After all, you need to live in the present, and plan for the future. So make sure you cover how you'll live in the present while you are planning for the future.
How to Plan for Gratification?
In delayed gratification, you need discipline and self-control to delay actions. In planning for gratification, you need discipline to follow through your plan.
Ask yourself these questions.
What are my treats?
Identify what you enjoy doing.
What you enjoy might be different from what others enjoy. Some might enjoy traveling, but you might be the person who enjoys fine dining. You may be a shoe collector, or a bag collector, or an action figure collector.
It's different from everyone. So know that treats that make you happy. A lot of my friends enjoy touring different countries, but right now, what I enjoy most is eating good food. I have selected my treat. What's yours?
What are the things I can only do now?
Know if the treat is something you must do now, because you may not be able to do it in the future.
Money lost can be recovered. But time lost is forever lost. There are moments that call for splurging - like treating your loved ones once a year. Like what MasterCard says, some things are priceless. (This is as far as I would agree with credit cards).
I hate to remind you of this, but your body is also not going to be young forever. While in Australia, there is no maximum age limit to skydive, your physical body will dictate if you can still jump out of that plane and land safely.
There are just some things that cannot be postponed.
Can I afford it with what I have now?
Don't go in debt just to treat yourself.
The next question to ask is whether you can afford it with your current finances, with your savings and investments.
As I said earlier, I don't entirely agree with MasterCard. I strongly recommend that you don't use your credit cards to fund your treats if you are going to use the future money that you don't have right now. Although I know it's a credit card, I always treat mine as a debit card. Unless it's a matter of life and death, my credit limit does not dictate how much I will charge on my credit card. How much money I have in the bank does.
There are two reason why I'm saying this. And I would like to emphasize this point.
1. The interest rates are hefty.
2. What will happen in case of emergency?
Which brings me to my next point.
Do I already have an emergency fund?
Make sure you have funds to cover unforeseen events.
Good planning includes contingency plans. Having an emergency fund is one of my requirements before I would even think of having a very big treat (meaning about 2 - 3 month's worth of income) for myself. After all, unexpected things happen. And since I'm advocating planned gratification, this is part of good planning as well.
Typically, an emergency fund is worth your six months' monthly expenses.
Do I have a financial plan for retirement?
Living in the present doesn't mean you do not plan for the future. The future is still part of our life.
Indeed, YOLO is the in thing right now. You Only Live Once. But if you live in the future, that life is part of your one life that you live.
Always make sure you have a plan in place for retirement. You may plan not to allocate funds to your retirement immediately, but you have to identify a practical date when to start, and stick to it.
How Long would you delay?
From my perspective, you have to decide how long.
Ask yourselves the questions above. The last three questions dictate how long you will delay. There is no fixed time because everyone's goals and plans are different. But remember, don't feel guilty about treating yourself. You have to keep yourself motivated and you deserve to live in the present.
As I said earlier, the discipline is in planning, not delaying.
To understand more about personal finance, you can read some books below.
- Be the master of money.