Delayed gratification or instant gratification? This is the choice we have to face every day.
Nowadays, the vacation has not started yet, the message is already out: Jane Doe is going to see Asia. Once she is there, the pictures are like a waterfall: it never stops on the Facebook, Twitter, Instagram, etc.
What are you thinking after seeing your friends’ beautiful pictures? “I wish I were there”, or “I’m going there next year, no matter what.” Oh my, it’s tempting, isn’t it?
Are we supposed to be humble, not to brag about our travels, material stuff, wealth, and try not to influence others? Living in this digital world, we got acclimated to the so-called “sharing”. Even a homebody like me bragged my travel experience in Taipei.
Instant gratification is the trend. Many people want to get rewarded, right now. Waiting? No, they don’t want to miss the fun.
As a result, many ended up in big debt, and lost the focus on big things: build up emergency fund, save and invest for retirement, and for kids’ college, etc.
Delayed gratification is a dinosaur. Old concept doesn’t necessarily mean it’s bad.
Delayed gratification is a good, slow and boring tool to accumulate wealth:
Delayed gratification is really not that exciting.
Let’s say, you just got a birthday gift (at the age of 25) from your grandparents, a check of $5K. You plan to save and invest it. To be conservative, let’s assume: the money doubles every 10 years. This is what you’ll have:
Your age Amount
If you spend it now, the money is gone. And you don’t have to worry about the math.
If you choose to invest it, it will grow to $20K after 20 years, and to $80K after 40 years.
When I was a kid, many families in that village raised chickens as one income. People always said: “Don’t kill the young hens.” Why? That’s delayed gratification: each hen had the potential to produce more eggs, and could hatch out more baby chicks.
Year after year, the hens did lots of hard work. It’s snowballing. At the end, the hen became too old, and ended up on the family’s dinner table.
Saving and investing is a long and slow process. As long as you keep investing consistently, time is your friend. The longer your money sits in the pot, the bigger the pot will grow.
Delayed gratification is boring. But it’s rewarding at the end. You got enough money set aside to retire, so the 8-5 regular job becomes optional. Your life is not controlled by the employer anymore. How sweet is that?
Delayed gratification requires discipline:
Here comes the hard part: we have to resist the bombarding temptations. It requires discipline. This is where many people fumbled.
Everyone knows what delayed gratification is. The compounding makes perfect sense. But, taking the actions is not easy. I failed not just once, but twice.
Delayed gratification is not a one-time thing. It’s an ongoing effort, and has to become a newly adopted habit. It’s the right thing to do, and is good for us and our families in the long run.
As a parent, if we could delay the gratifications, that sets a good example for our kids. They are observing and following everything we do, though they may ignore the words we say.
Delayed gratification does not deny occasional splurges:
I’m sure you like to hear this: it’s okay to splurge once a while. But, don’t let splurge become a habit, and make sure you can really afford it.
Check the post “What a #YOLO Trip Looks Like for Inherently Frugal People: Stanley Cup Finals in Vegas” on Gen Y Money. The millennial couple lives frugally, and the young husband fell in love with his worn-out shorts. But they do spend money on what matters the most.
Talking about affordability, the Suze Orman show on CNBC (the show was closed) used to have one section called “Can I afford it?” That’s my favorite section.
Audience called in. Suze’s signature question was: “What do you want to buy, my friend?” The audience presented the case: the financial numbers, what and why he/she wanted to buy. Suze made the final verdict: Approved or Denied. It was fun and educational.
Delayed gratification: how delayed should it be?
Delayed gratification still means gratification. It is just planned for a later time. If you totally forget about gratification, that’s probably too harsh to yourself.
But, the question is: how late should it be? When should we start enjoying our savings? Back to the original story, you got the $5K at 25 from your grandparents. Should you spend it at the age of 45, 55, 65, or even later?
This question has been lingering in my mind for a long time. I’m an early retiree. Should I wait till 65 when Medicare kicks in, before really enjoying the money? I don’t know.
I like to travel a little bit more. Yeah, a brand-new car is still looking gorgeous to me.
This is how I do my retirement planning:
Y / X = Z
“Y”, the numerator, is my total wealth, excluding the house and car.
“X”, the denominator, is the number of years left. 85 is used as the check-out age. I’m 52 now. So X = 85 – 52 = 33 years.
And the division result “Z” is the amount of money I could use every year. In my case right now, it’s like the 3% rule. Just a ballpark estimate.
As the time goes on, definitely “Y” (the wealth) keeps growing, as the market is going up overall. At the same time, “X” (the years left) becomes smaller, as I’m getting closer to the ground. So, “Z” is getting bigger. It means, after 10 or 20 years, I’ll have much more money to use annually.
The question is: will I be healthy enough to enjoy the growing money at that time? Nobody knows. It’s a gamble.
I wish I knew how long I’m going to live. As sort of a control freak, I like to plan things ahead. But, mortality is not something I can control and plan for.
It’s not pretty to let the money run out. On the other hand, it’s not fun to let the time run out either, before spending the money. What a conflict!
If I’m too old and fragile to walk someday, what’s the point of having that money? So I could use it for the nursing home? No, I don’t want to go to the nursing home.
Let me stop painting this depressing picture.
Delayed gratification is still the right way to go. But, don’t forget to enjoy the money down the road, while you still can. That’s the point.
Questions to you: what’s the perfect age to start enjoying the retirement savings? Are you worried about leaving too much money behind, and not having enough time to spend?