I saw a guy walking to his brand new Range Rover as he scratched off lottery tickets he’d just bought at the gas station. As I filled up my Honda, I watched as he got into his Range Rover- because I just wanted to convince myself that it was his car.
Now, I came up with these pressing questions and I really wanted to investigate:
- Is he wealthy? Maybe he’s leveraged to the max and only leasing a Range Rover.
- If he’s wealthy, did he get that way by playing the lottery? Odds are that he didn’t. This website states that the odds of winning the Missouri Lottery (my home state) are 1 out of millions, depending on the game you play. So, the answer is probably a no.
- Did he get wealthy through some other means (work, inherited wealth, etc.) – and he simply plays the lottery for fun? That’s probably it.
I’m not a fan of the lottery, because it creates a real false hope for the people that play it- and take it seriously. My theory (and it’s only a theory) is that many people play the lottery because they don’t think that they can accumulate wealth unless they hit a jackpot.
I think that’s completely false.
Get free chapters to my new ebook: How To Save, Invest and Manage Debt.
Discipline and time
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:
I’ve written about making financial changes at length. This post about personal finance mistakes is one of my most-viewed posts, so people want to know about this information.
Decisions small and large
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 this 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).
So, what do I get?
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 brakes down, you can pay for the repair.
Long term, the benefits can be enormous, because of compounding interest. As Investopedia explains:
“Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.”
You earn interest on your original investment (principal) and on the earnings you reinvest. To see the financial impact, check out this compounding interest calculator.
Assume, for example, that you initially invest $1,000 and add $1,000 a year for 25 years. At a 6% interest rate, your investment of $26,000 becomes $62,448.
And you didn’t need to buy a lottery ticket.
Give delayed gratification a try. My daughter told me Friday that she wasn’t listening in her personal finance class and bought a nice purse online. I don’t think she’s read this post yet.
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(website and blog) http://www.accountingaccidentally.com/
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Day Two hundred and seven: It’s nice to dream sometimes
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