How Delaying Gratification Can Save You Pain Down The Road

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That third LV purse?! Your fifth pair of Jordan’s? What the heck is wrong with you? Despite our many material possessions we always want more. I want more. You want more. We all want more! In a world where it’s all about YOLO or FOMO and everyone else is doing it we all don’t want to be missing out. It also doesn’t help that on a daily basis our Facebook walls are plastered with advertising, Snapchat posts are filled with people doing adventurist things, and if I’m just sitting on the couch then what the heck am I doing with my life?. Of course it’s human nature to want those things. We want everything. We want everything that everyone has. Our wants are unlimited!

The only problem with so many wants is our inability to actually afford all these things. There are only so many wants that we can satisfy. I know… I know.. I’m starting to sound morbid, but get used to it. I’m not really going to sugar coat it because honestly, living beyond your means is a recipe for disaster and what many Canadians are doing.

Future Dollars

When people spend money they always try to think about how much time at work it would take to earn that money. Something like this might go on in our heads: Those Ferragamo shoes are $500 dollars so it’s going to take me 20 hours working at $25 dollars an hour. That makes quite a lot of sense, but we’re living in the now. What happens when we look at what that $500 can become invested into the future?

If we assume an annual 7% return, and we look at what it might become after:

5 years – $701.28
10 years – $983.58
25 years – $2,713.72
40 years – $7,487.23

What does this all mean? If you think about what the future dollar value of your purchase will be, it might have a impact on how you approach your spending. So let’s say you’re 25. Young, got out of school and finally flush with cash from your first job. You go out and buy a pair of Jordan’s that cost $250. What’s that really impacting?

Well for every dollar that you spend at 25, you are taking roughly this much away from your future self:

30 years old – $1.40
35 years old – $1.97
50 years old – $5.42
65 years old – $14.97

If you think short term of 5 or 10 years you might think, whatever it’s $2. But if you start thinking long term, each dollar spent at 25 years old is actually taking away $15 dollars in your retirement years. It’s no wonder when people say that when you get married and spend $35,000 on a wedding that you just lost half a million dollars in retirement. Ouch!

Saving Early

If you are trying to save for retirement, saving early can really help you further down the road. Since every dollar that you put away earlier in life has more time to compound, it’s actually possible to save less money every year and get to your retirement goals.

compounding

The chart shows what happens if you’re trying to save for 30 years. Someone who saves $5,000 a year for 30 years will get to $472,303.93 by compounding their investments at 7% a year. If you delay saving for 10 years, in order to get to that same return you’d have to save $11,500 a year rather than just $5,000. Delay that even further down the road and you’ll have to save $34,200 a year.

So what actually sounds better? Saving $5000 a year or $34,200 a year? By delaying your savings, you are actually making it far worse for yourself down the road. That’s when the real bills start to come out. Mortgage payments, daycare, renovations and luxury cars. Where is the savings coming from? If you’re trying to catch up for past mistakes, it’s a lot harder to do once you start saving late! All for what? Because you wanted to have 5 Gucci bags when you were 25?

Keep It Reasonable

All of this doesn’t mean that you should live miserly and be a hermit that never goes out when you’re young. It just means to control your spending. Always try to put something away for savings even if you feel the pinch. Your older self will thank you later.

Sometimes it’s the little things that make the big difference. Perhaps pack your lunch to work. Skip out on a couple of fancy lattes and drink the office coffee. It doesn’t have to be drastic.

If you’re the kind that loves the shop, don’t go out and buy 10 designer purses. Isn’t one or two enough? Do you really need to have that nine Hugo Boss suits? Maybe 1 or 2 good suits are all you need and you can get some less expensive ones to fill out the collection. There are always alternatives, but what sacrifices are you willing to make to make your life easier in the future?

You may also wonder why you should save when you might not make it to 80 years old. You may think that, but the likelihood is that you’ll make it there. Human longevity is getting longer. Most of us will most likely live past our savings if we don’t invest. There’s no telling how many centenaries there will be in the next few decades as science and healthcare continue to improve. That’s why it’s important to save a little now, at least to make your later years more enjoyable. Who really wants to be sitting at home, with no life, wondering when the next government paycheck is going to come so you can afford food and electricity? I know I don’t.

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