Applying Delayed Gratification Mindset

If you do not know what is delayed gratification, read here to find out more.

It is important for people who wish to be successful in life to have the delayed gratification mindset. Research had shown that people who are able to delay gratification are better off as compare to people who don’t. An experiment by Prof. Walter Mischel, at Stanford University, California, studied a group of four-year-old children, each of whom was given one marshmallow, but promised two on condition that he or she wait twenty minutes, before eating the first marshmallow.

Some children were able to wait the twenty minutes, and some were unable to wait. Furthermore, the university researchers then studied the developmental progress of each participant child into adolescence, and reported that children able to delay gratification (wait) were psychologically better adjusted, more dependable persons, and, as high school students, scored significantly greater grades in the collegiate Scholastic Aptitude Test.[2] More recently, the study Fetal Alcohol Syndrome: Developmental Characteristics and Directions for further Research (1994) reported that children afflicted with fetal alcohol syndrome (FAS) are less able to delay gratification; indicating, perhaps, that poor impulse control might originate biologically, in the brain.[3] Adapted from Wikipedia.

How do I start applying delayed gratification mindset in my personal finance?

1. First you have to know why you want to delay gratification and for what purpose. Is it for a better lifestyle, buying your 2^nd property for investment purpose or simply to retire comfortably.
2. Pay yourself first! Start by allocating a certain percentage of your income (I save 40% of my income) and start a savings account that automatically GIRO that amount of money every month into it. This is a powerful and often underrated method. Read here to learn more about paying yourself first.
3. If you receive an extra income that month, example your Grow and Share Package, instead of spending all of it, you can save a larger percentage of it.
4. Any increase in your income, maybe from a raise or higher commission, you can choose to save a huge portion of it while saving the same amount as before. For example: You are currently saving $500 from $2000 income every month (25% of income). Your boss decided to increase your salary to $2500, instead of taking 25% from $2500 which is $625, you continue to save $500 (same as before) plus say 80% of the increment which is $400. So in total, your savings per month is $900 which is much higher than $625 if you continue to use 25%.
   
   The reason why I suggest that you don’t use the same percentage as your income increases is because the higher the salary, the higher the percentage. 10% of $1000 is $100, and 10% of $10,000 is $1000. That’s a huge difference and you might not need that much money to survive and to enjoy. Say if you can survive with $1000 pay, and have a steady lifestyle with $4000 pay, an increase to $10,000 means that you can save $6000 more as you only need $4000 for you to survive and to maintain your lifestyle. That is the sacrifice you have to make.
5. Increase your savings (savings = income – expenditures). There are two methods to this, first is to find ways to increase your income. Either by increasing your current income or look for other sources of income (taking multiple jobs etc). Second is to reduce your expenditures, that is simply by spending lesser.
6. Invest your savings when opportunities arise, provided you already have emergency funds. Invest in places you are comfortable with, and make sure you have assessed the risk involved. You don’t want to lose your hard-earned money. Some of the areas you can invest into are ETFs, high dividend yield stocks, MMF and the bond market.
7. Lastly, be patient! Remember to delay gratification. When you receive your dividends, or gain profit, don’t be quick to spend it. Yes, you feel like rewarding yourself, but look at it this way: If you invest $10,000 in a 10% yielding instrument, every year you receive $1000 and if you decided to reinvest that $1000 back, the following year you will receive $1100. And ten years later, you will receive more than $3000 every year. That’s the power of compound interest. But if you do not reinvest back, you will only receive $1000 forever.

In the end, don’t forget your purpose of doing this, if it is to buy a property, do it! Remember, you are doing it for your future; a minor sacrifice can reap a major harvest. But don’t delay gratification forever. Even along the process of delay gratification, you can still choose to enjoy it! Even though it is tiring, I am enjoying the whole process now. I believe one day when I look back, I will thank God that I chose to do all these.