Here's the analysis of your personality...
If you were offered a marshmallow, which you could eat right away or the option to receive two marshmallows if you wait for just 15 minutes, what would you choose?
If you said ‘eat it now’, you could be in financial trouble. But if you said ‘I’ll wait and collect two’, you’re financially sorted, most likely.
Somewhere in the 1960s, a study was done on ‘delayed gratification’ by Stanford professor and psychologist, Walter Mischel.
Now, ‘delayed gratification’ sounds complicated but it simply means your ability to resist the temptation of an immediate reward to be compensated with a greater reward in the future.
The study involved more than 600 children between the ages of 4 and 6. Each of them was individually taken into a room, where there were no distractions, and given a marshmallow. They were offered the option to eat the marshmallow or wait for 15 minutes and be rewarded with a second marshmallow.
The results: A few of them ate the marshmallow immediately. A large number of them tried to wait for 15 minutes and gave up somewhere along the way. And only some actually waited the whole 15 minutes to get the second marshmallow.
But what did this study prove? These kids became the subject of further studies over the next 40 years. And broadly, those who showed their ability to be patient (waited for two marshmallows) were more educated in the future, had a greater sense of self-worth, were able to manage stress better and were less prone to addictive behaviour.
Exercising patience in financial decisions can make the difference between successful outcomes and ones that you will regret for a long time to come…
Patience results in better saving and investing: Whether you put money in SIPs or bonds or the stock market, you are telling yourself to avoid spending today so that you will have more at a future date.
Patience allows your investments to grow: The longer you stay invested, the more head room you give your investments to grow, thanks to various external factors like the growth of the economy, the power of compounding, etc.
Impatience leads to loans for self-indulgence: By all means indulge yourself. However, taking a loan for an obvious indulgence is a sure sign of impatience. You want it now though you could save and buy it later. You have to choose between enjoying something today and then having a burden on your cashflow in the future or setting aside a smaller amount of your cashflow over time (since you will not have to pay interest and in fact, you will earn some) and enjoying the same indulgence in future, but burden-free.
Put up your goals where you can see them clearly: If it embarrasses you to have a poster on your wall which says what you hope to achieve, use a screensaver for your laptop or phone that has your goals streaming across. The point is that hopefully every time you see your goals, you will be motivated enough to work towards them (Read: Save and Invest, uninterruptedly).
Ask your bank to set sensible limits on your debit and credit cards: While this is less inspirational than viewing your goals, it’s practical. It ensures that you do not spend just because you can. A trip to the bank to withdraw a larger amount of money for an indulgent purchase may be a sobering enough experience to make you reconsider your decision.
Try to cultivate the habit of ‘wait 15 minutes’: Whenever you make an impulsive decision to purchase some indulgence, even a stock or insurance policy, or you suddenly want to sell your stocks or mutual fund units to purchase something, make yourself wait for 15 minutes and think about it. It may seem like a small window in time but it could make you change your mind and see things in the clear light of day.
Best of all, get a financial planner you trust: It’s always easier to make hasty spending and investing decisions when you think no one is watching. When someone whose financial interests are aligned with yours is constantly in the picture, you are less likely to take rash decisions. You always have someone at your elbow to stop you from gobbling down that single marshmallow and talk to you till you have earned the second one.
Disclaimer: Ventura Securities Ltd has taken due care and caution in compilation of data for its web blog. Information has been obtained from different sources which it considers reliable. However, Ventura Securities Ltd does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Ventura Securities Ltd especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its web blog. The information provided herein is just for the knowledge purpose and shouldn’t be construed as investment advice under any circumstances.