There is one characteristic of human nature that is causing the high amounts of consumer debt that the majority of North American’s hold.  What is it?  It’s need for instant gratification.

Why save to buy something when you can borrow the money and have it now?  The problem with buying now and forgetting about it is that it catches up on you sooner or later.  Before you know it, the minimum payments will be more than you can handle.

A (sub) prime example is the current housing crisis going on in the U.S.  Due to the accepted “buy now now now – ask questions later” lifestyle, some people were buying way more house than they could afford.  Instead of saving for a down payment and obtaining a mortgage within what they could afford to pay, people went for the bigger more expensive house that their income could barely cover even with the low initial mortgage rates.  As it typically does, instant gratification caught up on the over leveraged homeowners.  Now, there is a record high number of foreclosures on the market.

Building lasting wealth is a slow process.  Yes, there are some who seem to “strike” it rich all of the sudden, but more often than not, the wealth is due to hard work and commitment over time.

Examples of how delayed gratification can build wealth:

  • Education: Getting post secondary education instead of trying to make fast money out of high school.  I don’t need to tell you that post secondary education results in higher salaries than those without.  However, being a “forever student” can obviously hinder wealth.
  • Long Term Investing: Doing your research into a sound long term investment strategy instead of jumping in and out of whatever stock is “hot”.  Case in point, how well do those high turnover active mutual funds perform relative to low cost index funds/ETF’s?
  • Retirement Contributions:  I always hear people around me questioning why they should they save for retirement today when they could be hit by a bus and not see tomorrow?  Sure, it’s true that could happen, but what if the more likely happens and tomorrow does come?  Will they be ready?  Contributing early and often along with long term compounding growth is an easy way to retire wealthy.
  • Saving: Living below your means to save for consumer items instead of living paycheck to paycheck (or beyond).  From the Millionaire Next Door, most of North American Millionaires do not look like millionaires at all!
  • Real Estate: Buying rental properties at a good price for the long term instead of flipping properties to get rich quick.  Not only does flipping properties increase risk significantly, the profits are taxed at a higher rate!
  • Business:  When starting a business, spend quality time building the foundation (ie. the business plan).  Even though compensation is low at this stage, it will pay for itself many times over as the business grows.  Ever wonder why there are so many “Make $10k/month working from home” ads?  It’s smart marketers preying on human “get rich quick” nature.

When I was younger, my parents always used the cliche “good things happen to those who wait.”  Maybe they were onto something.

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  1. moneygardener on November 17, 2008 at 10:10 am

    This wealth tip hits the nail on the head. A lot of getting ahead financially relies on this type of theme…

  2. Dividend Growth Investor on November 17, 2008 at 10:51 am

    I see the same instant gratification thing when it comes to dividend investing. People simply want to purchase stocks with the highest current yields, despite the fact that the highest current yielders are less likely to yield the most on your investment in future.

    Stocks with consistent dividend growth like JNJ, MCD and a plethora of others are always ridiculed for their low yields. Of course if you could wait one decade or more then your yield on cost does rise to the double digits..

  3. Scott on November 17, 2008 at 11:35 am

    Ooohhh! Now I get it!

    (sorry but I just had to!)

  4. Donny Gamble on November 17, 2008 at 1:13 pm

    To achieve the success that you wish to achieve, will take a lot of time and dedication. The problem with most people who are trying to become successful, they expect everything to happen to fast. It takes time

  5. Mark on November 17, 2008 at 3:39 pm

    It’s not only about delayed gratification though. Finding new ways to save is helpful.

  6. Andy @ Retire at 40 on November 17, 2008 at 3:58 pm

    I think that’s the one thing I have learned recently about personal finance and saving for retirement, that it is a long and slow journey towards that goal.

    The funny thing is, by realising this and doing something about it, that journey will likely take less time!

  7. accelerated mortgage program on November 17, 2008 at 5:43 pm

    dont spend it if you dont got it! simple as that. we must live within our means if we are to escape the bondage of debt.

  8. Nurseb911 on November 17, 2008 at 8:35 pm

    We do live in a world seeking instant gratification, but it obviously comes at a cost. I suffer from it every so often, but the majority of the time I can look to the long-term and practice patience.
    This is one of those topics that defines an individual’s ability to achieve financial freedom early in life. If its only a want vs. a need than you have to ask yourself what financial cost you’re taking in order to receive that gratification now vs. later.

  9. Saver Queen on November 17, 2008 at 11:06 pm

    You are quite right that building wealth requires living below your means, plain and simple, and this depends on the ability to delay gratification. Scott, you laugh as though it’s obvious and in many ways it is, but unfortunately, the “now” mentality is so heavily perpetuated that many people buy into the philosophy that they need – and deserve to have – everything they want right NOW. Delayed gratification is not really encouraged. I’m hoping that more and more people will come to learn that delayed gratification is necessary for a peaceful life and can provide immense satisfaction.

  10. Scott on November 18, 2008 at 1:37 am

    Saver Queen — The “Instant Mentality” has been growing in N.America for decades (when were instant mashed potatoes invented?!). It’s instant everything. No one wants to work or labour or toil or wait for anything. Watch people get all antsy and upset when their internet takes more than 3 seconds to load!

    It can really screw people up. I’ll use myself as an example. I grew up in the 80’s with the “Me Generation” (aka Baby Boomer) controlling the “Me Decade”. I was bombarded and saturated with gross amounts commercialism and overwhelming materialism — that’s the way I thought life was, I didn’t know any different! Even the slogan for the 80’s (and 90’s) won an Academy Award: “Greed is good!” ~ Gordon Gekko.

    There I am, all primed to rake in the easy .com money and make a fortune in anything I bet on…but by the time I have any kind of substantial money to invest what happens? POP! POP! POP! POP! (how many bubbles were there in the last 8 years?).

    Now my brain, raised and wired by the greed and over-consumption of the 80’s, doesn’t know what to do! But seriously….good thing I’m a saver by nature.

    On a similar vein, I was talking with a friend of mine about why there hasn’t been any protests etc in the U.S. in response to the sketchy activities the banks and government have been up to (as opposed to the month-old protests taking place in Iceland). He had a good insight. If you constantly beat a person down eventually they will break and revolt (or just lay down and die); but…if you give a person everything and anything they want and need, with very little or no effort on their part, then you subdue their spirit and dull their brains (like a fattened cow). So when things do start going up in flames, the zombies just sit and watch the show. A very bad side effect of ‘Instant’.

    We haven’t really had to suffer or compete or really, really work to get anything in maybe the last 50 years. Sure, life is supposed to get easier, I guess, but look what happens when we get that life handed to us.

    On the flip side of things, massive fortunes CAN be made literally over night, but not by mere chance, luck, or line of credit. It usually has to be backed up by a life time of study and experience (e.g. George Soros made a BILLION dollars in one day trading the British Pound; Buffet made a BILLION dollars when Proctor & Gamble bought out Gillette; Jed Clampett made millions from bubbling crude).

    “Good things come NOT to those who wait, but to those who make good things happen.” ~ Me

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