Building Wealth (Ep.2) – Delayed Gratification (தமிழ்)
Jason 0 Comments Retire Wealthy
We went through the importance of "Developing Financial Knowledge" in the last episode. If you have not watched it yet, please watch that first. Today we are going to watch the second episode in the series "Building Wealth". Delayed Gratification Gratification means – We all have our own desires right? When we attain those desires, we get this great satisfaction right? That satisfaction is what is called "Gratification" in English. "Isn't attaining our desires is a good thing? Why should we delay?" – you ask. Explaining that is the purpose of this episode. If "Financial Knowledge" is the architect of building wealth, "Savings Rate" is its foundation. Our foundation will be as strong as our savings rate. We already know this from "Financial Freedom" episode. Most of us will achieve 20% savings rate easily. But to go beyond that, we need to know some strategies. Normally what we do is, we keep upgrading our lifestyle in line with our earnings. We will be with four roommates when we start working.
In 2-3 years, our salary will double. When that happens, we upgrade ourselves from 4 room mates to 1 room mate. Then in 2-3 years, we get married. Then we upgrade ourselves to a one bedroom apartment. Then in 2 years, we upgrade to a two bedroom apartment. Then after kids, we buy our own home. So depending on our career growth, we keep upgrading our lifestyle. Then expenses add up with kids, school fees and so on. It never comes down. After 40 years, we will come to a sudden realization, that we have crossed half our life time, but all that left is just our home as asset.
We start thinking about retirement and investments only after that. But by that time, we will have other responsibilities. Saving for kids college, marriage become our priorities. Just like that, our life would just pass away. Next generation will follow the same pattern as well. How can we build wealth if we live like this? Life of a US settled person is also very similar to this. But they do one more thing after 40. They sell their current home and upgrade to a bigger home. So we are keep upgrading our life style depending on our financial growth from our career. Regardless of how much we earn, we spend to match that earnings growth.
If we want to break this cycle and move to next level, there is just only one option. That is – Delayed Gratification. That is – instead of enjoying the life upgrades immediately we can postpone it to some time, and attain financial growth. Before we check out on how we can do that, a small tidbit about "Delayed Gratification". In 1960's, Stanford University conducted a psychological experiment called "Marshmallow Experiment" with kids.
Marshmallow is something that looks like a thicker version of Cotton Candy. It is white and super sweet. Kids love it. They used 3.5 to 5.5 years old kids for this experiment. What they did was, They asked a kid to stay inside a room and they put a marshmallow on a plate in front of them. They made a deal with that kid. The deal is – I will leave the room now. But will be coming back after 15 mins. If you have not eaten the marshmallow by the time I come back, you will get two marshmallows instead of one. So – the kid has two choices. There is a marshmallow right in front of kid's eyes. Instead of waiting for another marshmallow for 15 mins, the kid can eat one right now. Or wait for 15 mins and eat two marshmallows instead of one. When we hand over a fish to a cat, is it possible for the cat not to eat the fish? 7 out of 10 kids ate the marshmallow immediately. But 3 out of 10 kids controlled their temptation and waited for the second marshmallow successfully.
Stanford University did not stop their research at that. They followed these kids for 40 years to see how they are doing in their life. The kids who waited patiently settled better in their life. They did well in their college entrance exams. They did not fall addicted to any drugs. They did not have obesity issues. They used their "Self Control" capability totally to their advantage. What we learn from here is, people who have a strong mindset and who do not get distracted easily are very disciplined and they set up a goal for themselves and attain it as well. They do not think in short term. They plan for long term and achieve it successfully.
We will see this "Long Term Planning" more in detail in another episode. Coming back to our topic – "Life Upgrade" How many upgrades do we see in our adult life? We upgrade from 4 room mates to 1. We upgrade from 1 room mate to separate apartment. From 1 BR we upgrade to 2 Bedroom. From 2 Bedroom, we upgrade to own house. Even for own house, we again upgrade to a bigger home. All these are housing upgrades. Like this, We upgrade from pubic transportation to bike. From bike to car. From car to luxury car. These are upgrades in our personal vehicle. We don't do these upgrades without a reason. We do it to match our earnings. If we do not upgrade our life styles along with our earnings growth, but delay it by 2 to 3 years – what happens then? The salary rise will go directly to our savings rather than for life upgrades and will increase our savings rate.
If the savings rate increases, the foundation of "wealth building" will be super strong. Think about it. If our whole life is 80 years, Its not really a big deal to delay our upgrades for 3-5 years. We are going to attain all these anyways. Its just that we are going to do it bit later. So, we have two choices. 1. Live in the moment by upgrading our lifestyle depending on our earnings growth. Or 1. Postpone the upgrades for a while and use that savings to build a strong nest egg so that we can even pass our wealth to next generation.
The choice is ours. Now we can see the benefits that we can get out of "Delayed Gratification" at high level. We will see how we can apply this strategically in different stages of life in next episode. Thank You..
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