You might be a bit confused right now because you know that I am a big promoter of using cash vs. your credit card. With cash you spend less (because it’s more painful to hand over cash instead of plastic) and you will never be able to spend more than you have in the bank. So yes, this is true, but I think it’s time for us to take this to the next level.
Rich People Delay Their Gratification
Have you ever heard of the term, “delayed gratification”? This basically means that you don’t buy something just because you can. Instead, you buy something only when it is wise to do so. You might be able to pay cash for the item, but that does not mean that it is wise to buy it.
For instance, let’s say that you have always wanted a big screen TV. You are working toward building up an emergency fund and have $3,000 in the bank (keep in mind that a full emergency fund is $10,000). You took a look at the sale papers this morning and your dream television is on sale! It’s a 60 inch, 3D Smart TV and it’s only $1,699! You have the cash in your account, but should you make this purchase?
I hope that your answer to this question was a resounding “no” (and perhaps a head shake included as well). Sure, you can pay cash for the TV, but the purchase is taking you further away from your long term goals and is putting you in a dangerous position should you have an emergency.
We all have products that tempt us. Yours might be some of the following:
- golf clubs
- newer car
- bowling ball
For me, my big temptation is a boat. I have always wanted to head out on the open waters in my boat, throw out the anchor and just lay there in peace. I could also take it out to go fishing, or even take someone out to go skiing. At this point in my life I could buy a pretty nice boat, but it would definitely not bring me closer to my goals in life. I ultimately want to pay off my house, buy real estate, and retire early. Boats are expensive and would cause me to postpone my goals for many years. I would much rather own a boat when I am retired at 40 years old than right now since it would mean postponing my retirement for another 5 years. To reach your goals in life, you must stop spending your cash.
Make a Goal For Your Purchases
It may sound like I am telling you to never buy anything fun, but that’s not what I am saying at all! I love to buy nice things and I do own some pretty nice stuff around my house. But, we need to go about it in the right way.
My current goal is to pay off my entire mortgage by the end of the year. This is a huge goal that takes some enormous discipline, and I need to reward myself along the way (in order to stay motivated and not get burnt out). So, when I get my mortgage below $40,000, I told myself that I am going to buy myself a nice reward – a brand new bicycle that will hopefully get me a little closer to winning one of my upcoming triathlons! Now, I’m not talking huge money here. Something reasonable that will cost about $500. After paying off $15,o00 of my mortgage, I would say that it is well deserved.
The best part about setting goals and rewarding yourself is that the purchase comes with no regret (and it actually reminds you what a good job you did on your goals)! I made a plan to buy my bicycle and when I order it, I can do it guilt free and enjoy riding it. Plus, each time I hop on it for a ride I will get a smile on my face because I’ll remember the time that I hit my goal and I’ll be looking forward to hitting the next one. 🙂
Are you going to stop spending your cash and delay your gratification?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.