On his new salary increase —“Ninety percent I’ll spend on good times, women and Irish whiskey. The other ten percent I’ll probably waste”.
–Tug McGraw, former Major League Baseball pitcher
“…some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
—Warren Buffett
Financial independence takes time and patience. And no one has made more people rich than Warren Buffett. His patient approach to money management has worked.
On the other hand, if you were looking to throw a great party, someone with Tug McGraw’s attitude would be better. Waiting and patience don’t enter into most party decisions.
The question always is: do you enjoy yourself now, or wait until later? Overwhelmingly research shows that being patient helps build wealth. Time has value. But how can we be sure that is indeed true, or that deferring purchases is worth it?
Well, in MMH we often explore opposites to answer a question. And that brings me to a quick detour, so please bear with me. Have you ever wondered what happens to people who do NOT believe that time has value?
Let’s look at some examples. Two movements stand out:
1. The I-want-it-all-now-(and spend like it) group.
2. Doomsday cults.
I know what you are thinking. What do doomsday cults have to do with this subject? Well, the I-want-it-now philosophy holds that spending everything today is proper, even wise. After all, we could all die tomorrow, or so the thinking goes.
By contrast, doomsday cults believe that tomorrow won’t happen at all.
From a money perspective, their attitudes are virtually identical. In other words, both groups feel that patience, financial or otherwise, is irrelevant. So, are they right? Is Buffett wrong?
Nope. So far Buffett is winning the argument.
Let’s pick on doomsday cults first, and focus on a relatively recent example. In 2012 doomsday pundits caused a panic when they claimed that the ancient Mayan calendar predicted the world’s end on December 24th. However, the destruction theories varied. In one theory, the War God would descend and destroy everything. So, some people decided to respond by purchasing expensive nuclear and asteroid proof bomb shelters. Apparently, they felt the War God pitched asteroids like Tug McGraw once threw fastballs (or maybe shot glasses).
According to another view, the Mayans had predicted we would all float off into space when gravity ceased. It has been reported that some people went on massive spending sprees to so they could enjoy their last moments on earth. That way when they floated off, there would be no regrets. When the world survived, they were just broke. Still, it was a good time while it lasted. Everyone just blamed the ancient Mayans.
I know that is an extreme example. But here is the point: is that attitude so different than people who want instant gratification, and get into massive debt to feed their desires? After all, the debtors give no credence to the future either. Deferring purchases does not occur to them. Bottom line: compulsive overspending is one of the leading causes of bankruptcy according to Investopedia.
By contrast, virtually all research shows that the wealthy and financially independent are patient with their money.
There is a lesson there. It turns out that patient people with self-control are on to something that matters—not just wealth, but happiness too. According to a 2016 study conducted by professors Mitchell and Huffman patience is a better predictor of wealth than religion or marriage. If you looked at the MMH post about your life partner, you know that is saying a great deal. Moreover, some studies show that delayed gratification and patience result in higher levels of happiness and life fulfillment.
In other words, the self-control needed for delayed gratification can make the difference between prosperity and failure, happiness and unhappiness.
Does this mean that people who live only for today are always foolish? Are they the equivalent of doomsday cult followers?
No, the terminally ill for example are justified in spending for today. The same goes for the very elderly who also may not have much time left.
And living solely for today is a lifestyle choice. Many people do and enjoy themselves. On the other hand, they are essentially betting that their fiscal world will end. As we have seen, members of the Financial Doomsday Club cannot always get their purchases refunded.
Three kinds of strategies avoid the short-term outlook can lead to problems:
- Do not value your time and experience so far above that of others. The Study showed that only about 18 percent of people would lend $100 to others for a year for less than 10%. Put another way; a whopping 82% wanted a 10 percent return or better. At this writing, the inflation rate is about 2%.
- Be comfortable with having less now. You may not be able to buy that nice car or go to a high-end dinner. But that patient attitude will eventually pay off.
- Know that get rich quick schemes are seldom used by people who have the most financial success.
If you want financial independence, put off some purchases now so that you can buy more things later. It is realistic to think it will take time to meet your goals–and that you will have the lifespan to achieve them.
SUMMARY:
- Patience, self-control and delayed gratification generally result in higher levels of wealth, fulfillment and happiness.
- Immediate gratification is wholly justified if there is only a short time left to enjoy your life.
- The most difficult challenges come in the internal battle between immediate needs and delaying gratification. In general, those who delay gratification do better financially. The trick is in finding a balance.
ACTION STEPS:
- Define goals. Take the time to decide which ones are long term and which are short term. Otherwise, goals are just a wish list.
- To define short and long-term goals further, map out the steps and approximate time frames to accomplish them. Big goals usually take time and patience.
- Avoid the three pitfalls noted in the last part of the post.
Postscript: a strategy of patience is not always reasonable or appropriate. Achieving a balance is a key, and it is never easy. An example: Tug McGraw died at only age 59 from brain cancer. It is hard to argue with his financial choices.
Disclaimer: consult with a financial professional before taking any steps outlined here. Not all advice is suitable for your circumstances or investment style.
Photo credit: US Dept. of Fish and Game