How to make financially delaying gratification easier

Simple mental math to use before any purchase

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Photo by rupixen.com on Unsplash

You know that saving money should be much better than splurging on purchases. But it can be hard not to splurge at times.

What if I could make it easier for you?

There’s a mental trick that you can use to help you with this, coming from the FIRE movement.

And it revolves around the number 25.

One of the most influential studies around willpower was the famous Marshmellow experiment. Kids were offered either one marshmallow now, or 2 after waiting for 15 minutes.

The ability for some kids to delay gratification for the bigger reward led to the kids being more dependable, self-motivated, psychologically well-adjusted and scoring better in grades. This characteristic was later shown to carry over in their adult life as well.

However, the delayed gratification model changed in the mid-1990s, when it was discovered that willpower is a resource that can be depleted. After all, if this was a skill that could be learned as a kid, you wouldn’t have days as an adult where delayed gratification is hard.

Because of that, there are many problems that we face when trying to implement this in real-world settings.

One of the major problems that occur within real-life situations of this is based on the concept of reliability. And it goes like this:

The reliability of gratification affects future studies.

Let’s say, for example, you delay partying for a few weeks to study and do well on a test. But on the day of the test, you’re nervous, don’t feel well, and bomb the test anyways.

That result may make it harder to delay gratification in the future.

When children were told they would receive better art supplies if they waited for them, and they ended up getting poor quality supplies, they stopped waiting for the larger rewards in future studies.

And that’s a problem with the way that we set up our reward structure in real life: often, it’s a reward based on things outside our control.

We could put in overtime hours at our job instead of going drinking with colleagues, only for the boss’ nephew to get hired and get the promotion.

We could scrimp and save for a relaxing vacation on a tropical island, only for a typhoon to come by and ruin it.

And that’s not even touching on many factors which may impact your baseline for delayed gratification, such as depression.

So after facing several setbacks like that, is it any wonder that many people prefer to live in the moment?

The Reward is not that obvious to us if we don’t have a clear goal in mind, and even if we do, it still might not happen.

This is a large problem, and I won’t say that there’s one easy solution to it. But I have a tip for the financial domain of this: Divide your investments by 25.

This is an idea based around the FIRE movement, but that doesn’t necessarily mean that you need to subscribe to the entire movement.

One of the concepts in the FIRE movement is to calculate your total expenses to figure out how much you need to save for retirement. The goal for this is to see how much money you need to save in investments to safely withdraw in a year.

The consensus with this is that you can safely withdraw 4% (or 1/25th) of your total portfolio each year without running out of money.

So if you have $50,000 in expenses each year, you would need:

$50,000 * 25 = $1,250,000 saved to safely be Financially Independent.

What’s important, though, isn’t those numbers: it’s that the framework they outline matches with the delayed gratification model of the laboratory.

Rather than viewing this in the lens of retirement, though, let’s look at it through the lens of credit card offers.

I know, that sounds weird, but bear with me.

Imagine that you got a new credit card in the mail, but instead of rewards for spending money, you got a reward for saving money.

So instead of getting 25,000 bonus miles for spending $5,000, you got $200 for saving $5,000.

While I’m sure it’s not the best incentive out there, it would still be a pretty good reward in my opinion. You could just sock some money away and then never touch that account.

That’s the power of compound interest, which I’m sure has been covered to death. But now let’s look at it from a delayed gratification perspective:

If someone wants to spend $200 and has $0 invested, they will be down $200. That’s like eating one marshmallow.

However, if someone wants to spend $200 and has $5000 invested, with a compound investing rate of 4%, your $5000 will turn into $5200. So, essentially, you are not only spending $200 but at the end of the year, $200 gets added to your account! That’s like not getting one marshmallow, it’s like getting 2.

It’s almost like running that experiment in real life, huh?

I’m far from the first person to talk about compound interest, and what I offer is not sage financial advice.

People have talked about the #1 investment is investing in yourself, but often it’s too easy to put it off until later.

This is just providing a framework to allow you to see that same sort of experiment that can be in play in your own life.

If you’re able to see this in your own life, then suddenly you can run the same experiment in your mind in real-time. If you’ve seen my previous article about personal finance, there’s often a tendency to not be able to calculate these things off the top of your head. But hopefully, this makes it easier.

If you’re thinking about a $200 purchase, check to see if you have $5,000 invested across different domains for the year. And I want to emphasize for the year. At the beginning of the year? Start over again so that you actively try to save more during the first couple of months.

Things like a 401k, Roth IRA, Index Funds or High-Interest Savings Accounts. If you have invested in yourself first, and you have that portfolio, then perhaps you can have your marshmallow now and later.

Full Disclaimer: I am not a financial advisor. This system is meant solely as a way to visualize your salary to make better financial decisions. Please consult a financial advisor before making any major financial decisions.

I write about productivity, UX Design, Healthcare regularly. You can check out my course on Design Communication here.

Written by

Healthcare-focused UX designer and researcher. Creator of two online courses on design communication and UX research planning: https://tinyurl.com/y5m2j42v

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