How To Manage Personal Finances Book: Chapter 4- Delayed Gratification, Needs vs. Wants
Author’s Note:
I am posting a text version of this entire book on Substack, and video versions on YouTube. Email ken@stltest.net for details on the book’s publishing date in late ’24 or early ’25.
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Keep your head- when everyone around you is losing theirs
Markets are volatile, and goals help you remain consistent when markets are rapidly declining- or skyrocketing higher.
When markets are up, it may seem like everyone around you is getting rich- but that’s normal. In every bull market (periods with higher stock prices) I’ve seen since the ’87 market crash, most of us think that everyone else is making a pile of money.
No one wants to feel left out, right?
But there’s a trade-off. As you’ll learn later, the people who are really killing it in the markets are probably taking more risk.
You need to keep your head and realize:
Your goals haven’t changed
Bull markets, historically, come to an end at some point. In other words, stock prices don’t go up forever
Tom Petty has a song called The Waiting, and a line in the chorus that goes: “The waiting is the hardest part.”
Do you benefit from being patient?
Discipline, time, and delayed gratification
With discipline and time, I think most people can accumulate far more wealth than they think is possible. But growing wealth requires change- which is precisely why most people don’t make the effort. The changes I’m suggesting involve an old friend:
Delayed gratification.
Some decisions are relatively small:
Dropping a subscription music service and just listening to the free version (Pandora, for example).
Making coffee at home two days a week, which means that you stop by Starbucks less often.
Buying afew more generic products when you go to the grocery store and Target. (I’m not going generic on salad dressing, however).
Since these are smaller decisions, the amount of gratification you’re delaying is small. You don’t mind listening the commercials on Pandora (I certainly don’t- I just turned down the sound), and the coffee at home isn’t bad.
Other decisions are much bigger. StudySoup wrote a great article on the average amount of money a college student saves by having a roommate. The average savings over four years is over $15,000.
Now, having a roommate is a big sacrifice, because you lose a fair amount of privacy. If privacy is really important to you, it’s a true delay of gratification (until you graduate, get a job and can afford to live alone).
OK- so what do I get out of all this delayed gratification?
You build wealth- which can give you peace of mind.
Here’s a practical example: By making changes to your spending and building a savings account, you create a $1,000 emergency fund. If your car breaks down, you can pay for the repair.
Needs vs. wants
“There's a lady who's sure all that glitters is gold and she's buying a stairway to heaven”
The opening lyrics of Led Zeppelin’s “Stairway To Heaven” still have great meaning for me, because the song talks about the ability (or, rather, lack of ability) to buy happiness. The lyrics apply to anyone, male or female.
There’s a difference between a need (food, clothing, a roof over your head) and a want (glittering gold). You probably had a family relative lecture you on this point. I used to think that I really wanted a flashy sports car. Now- not so much. Your wants change over time.
If you have something you truly want, you know that there’s a tradeoff. You’ll have to give something up- maybe a lot.
Think carefully before spending money on a want.