Instant Gratification is Personal Finance’s Number One Enemy

When you give into instant gratification, you choose your present desires over tomorrow's goals.

Quick, what’s the biggest reason you’re always running out of money? If you said it’s the rising cost of living or limited job prospects in Singapore, you’re about 50% right. But what accounts for the other 50% is a long-standing need for instant gratification.

This is why, no matter how much money you make, you still seem to be broke. Here’s how it works, and how to fight it:

The Eternal Struggle Against Instant Gratification

If good personal finance had to be reduced to one concept, it would be simple: good personal finance - from retirement planning to saving money for emergencies - is about your ability to defer your wants now, in return for your needs later.

In the 1960s, Professor Walter Mischel devised the now-famous Marshmallow Test. A group of children had a marshmallow placed in front of them, and were told they could have a second one if they just waited for a while.

Only a quarter of all the children tested were able to resist the instant gratification of a marshmallow right now, versus waiting for more later.

The experiment followed up on the children later in life, and found that those able to delay gratification were generally more successful. Not only did most of them manage their finance better, they were also less likely to be obese, be alcoholic, or have gambling issues.

Psychologists call this ability to delay gratification the “executive function”.

The problem with instant gratification is that our brains are wired to prefer it. In the distant past, when we lived in caves and hid from dangerous animals, instant gratification was a survival trait: we grabbed food where we saw it, rather than wait till later (it might no longer be around).

This is the same quality that makes it hard not to spend money once we have it (we have an insatiable urge for stuff, whether we need it or not). It’s also the same instinct that makes it so difficult to diet.

Instant gratification makes you waste money by:

• Paying more for unnecessary speed
• Buying more than you can use
• Making semi-conscious purchases
• Improperly timed selling
• Buying on credit when it’s not necessary

1. Paying More for Unnecessary Speed

Instant gratification means having what you want, right N-O-W. This makes you willing to a pay a premium on speed, even when there’s no logical reason for it.

If you shop online, for example, you may be familiar with express shipping options. This is when you can pay a much heftier shipping fee, sometimes as high as S$40, in order to get “next day delivery”, or even just a week sooner.

Express shipping is useful for tight situations (such as when you forget your friend’s wedding and need his gift to arrive fast). However, instant gratification can cause you to use it even when it’s not needed.

Does it really matter whether your purchase arrive in two weeks instead of tomorrow? Often, the only reason it has to is that you want instant gratification.

This can also happen in good, old fashioned brick and mortar shopping. Say a shop is selling an outfit for S$35, but it will only be in stock in a few days. A shop one floor up is selling the exact same out for S$50, but they have it in stock right now.

Logic dictates that, barring some sort of urgent need (e.g. you have a big date tonight), you should wait a few days for the better deal. But instant gratification can cause you to buy the outfit for more, for no other reason than not wanting to wait.

2. Buying More Than You Can Use

Instant gratification makes you horde things for “later”, even when there’s no reason to. One side-effect is buying more than you can use.

For example, say you’ve just bought a new cookbook and are excited to try out a few recipes. Instant gratification may cause you to buy S$300 worth of ingredients at the supermarket, for all of the recipes. It feels good and “complete”.

But you would be buying far more than you can use. You can’t be preparing every dish in the cookbook all at once; it will take you a few months to get through all the recipes. That means there’s no need to spend S$300 at one go; you could better control your cash by slowly buying ingredients as you need them.

This is the same with hobbies like reading or wine; instant gratification makes you feel good for buying these things right now, even if you are buying more than you can reasonably go through in two or three years.

3. Making Semi-Conscious Purchases

Instant gratification prompts you to act fast. Sometimes your hands move and your wallet is open before you even realise you’re spending. This also happens in diet struggles - it’s the phenomenon where you’re looking at the bottom of the potato chip bag, even though you only intended to take one or two pieces.

This sort of spending tends to happen at the checkout counter of a supermarket (that’s why the cheaper items, like mints and snack bars, are placed there). You may also end up making side-purchases, and not really thinking of the cost, when shopping online. This can happen when you see the “people who bought this also bought…” category.

4. Improperly-Timed Selling

Instant gratification doesn’t just cause bad purchases, it can cause bad sales.

One common example of this is selling stock at the wrong time. Say you’ve invested in the Straits Time Index Fund for seven years, and on one particularly good year the share values are high. Instant gratification may tempt you to sell the stock and indulge in the money right away, even if you’d be better off holding onto it for your retirement portfolio.

If you need money to buy an expensive luxury (e.g. you need to have a cool looking watch right this instant), it can lead to “hocking” your stuff (selling it to a pawn shop) or selling things on Carousell / Ebay to raise funds. In your rush to make money, you may be selling more valuable items at steep price cuts, to get the money fast.

This makes no sense, as you’d be buying high and selling low. Remember that surrendering an insurance policy for an early payout, selling your stock to get a quick buck, or Ebaying your jewellery can all amount to serious financial losses.

5. Buying on Credit When It's Not Necessary

Say you want to buy a new laptop. You could set aside S$500 a month for three months, or you could buy it right this instant by taking a personal instalment loan.

Now if the laptop were essential for work, that would be understandable. But if it’s to watch Netflix or surf the net, it’s not worth paying the interest rate on the personal loan just to have it immediately.

There are many purchases that can wait, if we see things from a reasoned perspective. It’s the need for instant gratification that encourages us to get into debt, by pushing us to buy on the spot.

How Can You Control the Need for Instant Gratification?

The good news is that self-control can be developed. That’s why you’re much less impulsive now, compared to when you were a child. Many disciplined savers did not start out that way; in the Marshmallow Test, only 25% of the participants could resist instant gratification.

However, you can gradually build your self-control by establishing and following systems. For example, you can set a rule that you will buy a new thing only when you have fully used up something related.

You could, for instance, create a rule where you can buy a new video game only after you have completed a previous game.

As you implement and follow systems, you will find your self-control improving.

The other ways to build your self-control are simply to rest well and eat well. Your need for instant gratification grows with stress and exhaustion, as you will lose mental resilience. By ensuring that you sleep well and remain healthy, you will be in better control of yourself.

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