Human wants are infinite but the financial resources to satisfy them are finite. Often, I encounter clients who have multiple goals but have limited monthly surplus and assets to meet their financial goals. The other way to look at achieving your financial goals are by having control over your discretionary spending. Discretionary expenses are nonessential spending and are variable like dining out, vacations, entertainment and purchasing luxury goods or services. We have control over these Discretionary expenses but not on mandatory spends like Rent, Bills and utilities, Food & Groceries, EMI etc… as these are considered as fixed outflows and are basic needs. Understanding the difference between your mandatory and discretionary spending helps you to have more control over your budget. What you want and what you need are not always the same.
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It is crucial for us to understand the difference between a need and a want. Need refers to the basic human necessities without which we cannot survive like food, clothing & shelter. It cannot be avoided. Want refers to the expenses that help you to live more comfortably or the things that you spend for fun or leisure like weekly dine outs, expensive gadgets etc… It can be avoided or postponed. Budgeting is one of the best ways to cut down on your unnecessary expenses. A smart budget helps you to achieve your long-term goals by planning your current and future income and expenses.
If you want to achieve your financial goals faster then, I advise you to adopt delayed gratification. Delaying gratification is the action to resist the temptation of immediate pleasures or fun and wait for bigger rewards in the future. It means avoiding or postponing the small unnecessary spending to achieve the long-term goals.
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Example: If you avoid dining out weekly/monthly and cook food at home it will help you to save the money for a trip in future. Let us say you are spending Rs.1000 on your weekly eat outs by replacing it with home cooked food you can save around Rs.4000 per month. When you invest this amount in a debt mutual fund at 7% return per annum that becomes a corpus Rs.49,801 in a year. Money needs time to grow. The money you invest today earns interest and the interest you earned generates even more interest. This process continues until you withdraw the money. The earlier you start the more time your money will get to grow. Instead, if you spend the money now you are losing the future earning potential.
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it” ~ Albert Einstein
Instant gratification is the opposite of delayed gratification. It is the desire to experience pleasure or fulfillment without delay or deferment which means to forego a future benefit to obtain a less rewarding but more immediate benefit. For example a person watching the IPhone advertisement gets up and goes to the store to purchase the IPhone on Credit card No cost EMI facility; they are fulfilling that instant gratification but he is not thinking about how his cash flows will effect for the next few months due to the EMI’s. The impulsive decision to immediately fulfil your desires and can lead to making poor financial decisions and choices. Due to these unplanned expenses you may end up in a debt trap. Not all instant gratification is bad. There is nothing wrong with wanting or needing things, experiences, or products in a timely manner. It’s important to balance your desires with a realistic sense of timing and patience.
If you are an impulse buyer delay the gratification of purchasing something which you do not need like new iPhone or brand-new car etc…and earn the long-term reward of more savings and financial freedom by investing your money in assets that generates passive income. I know 9 to 5 job is really daunting and everyone wants to escape from the rat race to pursue their passion or spend time with their family & friends or participate in some philanthropical or charitable activities. Delayed gratification is one of the ways to escape from the rat race and allows you to retire early.
Though delayed gratification can help you achieve your long-term goals, it is important not to overdo it. If you cut all your expenses, you might save a lot of money, but you would also be miserable. The goal of saving money is to live a better life both in present and in your future. Finding the right balance between living in the moment and planning for the future is the key to a great life.
Sometimes we buy things just to satisfy our emotions rather than to fulfill our needs. So, when you want to buy online or at the checkout, pause and think about whether you really need to spend the money now or invest the same for your future goals.
‘A Penny Saved is a Penny Earned’ ~ Benjamin Franklin’
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