059 | Building Wealth Through Delayed Gratification

Lawyers are no strangers to the concept of delayed gratification. Even with all our experience with delaying gratification to become lawyers, we sometimes have trouble delaying gratification once we actually reach that milestone and start making money.

In this episode, we talk about what delayed gratification is and why we sometimes have trouble delaying gratification, and we explore two examples of how delaying gratification can positively impact our finances and ability to build wealth.

Lightly edited transcript appears after the show notes.

Topics Discussed

• what delayed gratification is
• why we sometimes have trouble delaying gratification
• two examples of how delaying gratification can positively impact our finances and ability to build wealth

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Resources mentioned

Lifestyle Freedom Starter Guide

Episode 29: What to Do When You Struggle to Reach Your Goals

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Lightly Edited Transcript

Hey friend. Welcome back to the show. I hope you are doing well and having a great day so far. So, today we are talking about delayed gratification. Lawyers are no stranger to the concept of delayed gratification, instead of going into the workforce and earning money after college, you went to law school instead. Or, if you did start working before law school, you decided to defer earning additional income, or to reduce your income to go back to school, then then law school, you may have decided to stay in and study or outline, when you really wanted to go out and that point reminds me of a conversation I had with one of my professors, my very first year of law school, she told me that I could come into law school and treat it as an extension of college and go out every weekend and do all the things that some other students would do, or I could make them sacrifices for three years and have fun in a whole different way. Once I had secured the kind of job I wanted, because she knew I was interested in big law. She was a former Big law attorney herself, and she told me that looking at the long term goal three years was not a long time. And she was right that time flew by, and I still had fun and hung out and made friends and all that, but I also made sacrifices and didn’t do as much as I could have done in the short term because I was looking at my long term goal, and I pass her advice on to law students all the time. But anyway, the point is, you’re already familiar with the concept of delayed gratification. You know you spent all summer studying for the bar that’s another example. And I want to talk today about why, even with all our experience with delaying gratification, and becoming lawyers, we sometimes have trouble delaying gratification, once we actually reach that milestone and start making money. I also want to show you two hypothetical examples of lawyers, one who delays gratification and one who goes after instant gratification to show how this can play out specifically in the context of your finances. So let’s start off with a definition of delayed gratification so we’re all on the same page about what we’re talking about here. So pretend calm defined delay of gratification, as the act of resisting an impulse to take in immediately available reward in the hope of obtaining a more valued reward in the future. The ability to delay gratification is considered a trait of successful people, they are able to keep the end game in mind, right, they’re looking at that more value reward in the future. And so they don’t get so distracted by more immediate pleasures in the short term the immediately available reward, they are able to put off what they want right now, in the hope of getting something even better later. And I read a quote once that said something like, when you choose instant gratification you rob yourself a better future. And I think that is so spot on. So why then do we have trouble with delaying gratification. A big part of it, I think is, our society is so conditioned for instant gratification. These days, we can get just about anything we want. Almost immediately, we can pull out our phones and look up anything we want to know. We can order things online and receive them the same day. We can fast forward through commercials to get back to the show we’re watching or just during the show, with no commercials at all, right, we can stream just about any song we want instantly and that alone is revolutionary because I remember listening to the radio waiting for my favorite song to come on and I had my tape all set up ready to go so I could record it, and then the worst was when you turn the radio on and the song was already on and half over, so you had to wait for it to come back on again. Right. But we have so many conveniences available to us now that we no longer have to wait for too many things anymore. Then beyond the society conditioning that we all experience instant gratification is also just more comfortable. It feels good, immediately, it’s easier. I’m buying this thing I want now, rather than putting my money toward debt or retirement or some other future goal that feels far off. Our brains are wired to seek pleasure and avoid discomfort, so when you’re literally comparing this pleasurable thing you can have now versus the discomfort of being disciplined and putting off that pleasure for some point in the future, you can see where it may get difficult right. Some of that difficulty also comes from a lack of trust in ourselves, like if you don’t believe you will actually achieve the goal you have in mind, or if you have uncertainty about whether you’ll be able to do it, then that makes the immediate pleasurable thing look even more appealing. Like why I experienced this discomfort for something I don’t know for sure will happen. What if I decide not to buy this thing I want right now and I still don’t pay off the debt, or build your savings or whatever your goal is. But what if instead you refuse to believe that you won’t do it. What if you built your trust in yourself and your ability to follow through on the things you say you’re going to do. That goes back to the concept of starting where you are, and setting smaller goals that are closer to where you are, that you will follow through with that you can then build that evidence that you follow through. I told you back in episode 29 Not to try to go from zero to Beyonce. How would trusting yourself to follow through and refusing to believe that you won’t reach your goal impact your ability to delay gratification, until you reach the goal. If I know for sure it’s happening as long as I do X, Y, Z, it’s a lot easier for me to do X, Y, Z right, you’re trusting yourself in your belief that you’ll accomplish your goals or everything in maintaining the discipline to actually reach the goals. So now I want to show you two hypothetical examples of how delaying gratification can play out in your finances. This is going to be a super simplified example, I’m not going to get into the effects of taxes and pre tax retirement contributions and things like that. But let’s say there are two lawyers and we’ll just call them lawyer, a lawyer B. They’re the same age, they’re both married with no kids, they are starting their first legal jobs, both of their employers have set up all employees to contribute 3% to their retirement accounts automatically, and we’ll assume that any additional investments the lawyers make are after tax for simplicity. So they both have a household take home income of $10,000 per month, and student loans of 150,000 and make these numbers fit your situation like if these are too high or too low for your household, just think about comparable numbers for your situation and adjust accordingly. But this is just to give you an idea. Getting into their specific spending habits while your a is ready to live the life, like she’s worked hard to get where she is, she believes that she deserves to enjoy the fruits of her labor, and so she buys a condo and a high rise down the street from the farm for $620,000 and the mortgage is $3200 a month, the condo also has a $500 a month HOA fee. She buys a new luxury car, five year loan $600 A month plus another $200 a month and insurance, then the minimum monthly payment on the student loans is 15 $100 and I assume just the regular 10 year repayment plan and 5% interest there. So lawyer a starts with $10,000 a month coming in. She’s paying a total of $6,000 a month out for the condo her car and her student loans, and that leaves her with $4,000 each month to spend on whatever else, she needs and wants, and most of that is spent eating out and clothes and, you know, going on vacations and other fun things that she and her spouse want to do most months, there’s not anything left to save or make extra payments on the student loans. After five years, she’s finished paying off her car, and she’s halfway to paying off our student loans, but she doesn’t have much in savings aside from the 3% She’s been contributing to her retirement account, because of the automatic contribution through her employer, she decides to start investing, the $600 that she had been paying toward her car, but otherwise she doesn’t change her lifestyle, and after 10 years she’s finished paying off our student loans, and now has $43,000 in non retirement savings because of the investment of the car payment for the last five years, and assume a 7% return. Alright so now let’s look at lawyer B. Lawyer B decides to take a more moderate approach, she upgrades to a nicer apartment, that’s a few miles away from our firm, and the monthly rent is $1700 a month, she keeps the car that she bought at the beginning of law school which cost $300 A month plus a $100 a month payment for insurance. And at this point she’s about three years into a five year loan on the car, like lawyer a the monthly minimum payment for the student loans is about 1500. So lawyer B starts with $10,000 a month, and is paying a total of 30 $600 for her apartment car and student loans and that leaves her and her spouse, with $6400 For everything else they need. They spent about another $1,000 on other unnecessary expenses and $1,000 on Entertainment each month, and with the remaining $4400 They make extra payments on the student loans. After two and a half years, lawyer B’s car and student loans are paid off. And that frees up $6200 A month that had been going toward that. So now she and her spouse decide that they’re going to buy a $500,000 house with a mortgage of about $2500 a month. So this increases their housing costs by $800 a month, they also increase their spending for other expenses and entertainment by another $1,000 a month, and they invest the remaining 4400 that’s leftover from what had been going toward debt, and they invest that at the same 7% return that we assumed for lawyer A. So at the five year mark, lawyer B now has no non mortgage debt and $144,000 in non retirement savings at the 10 year mark, she has 519,000. And remember that is compared to lawyer, a having 43,000 After 10 years. As you can see, lawyer B is in a pretty good position financially, she increased her lifestyle, a little after graduation, but she delayed gratification for a few years and focused on her finances. Then she and her spouse were able to come back, they got the bigger house, and they could even afford to buy a nicer car if they wanted to. She also has a lot of flexibility in the options available to her as far as her employment goes, and all of this assumes no pay increases no bonuses or anything like that. Obviously it was a very simplified example but the point is the lane gratification for just a few years can really set you up for the future and open up options for your life in a way that instant gratification can. So when you are looking at different things that you want to do for your life. Just consider if these are things that you want to do right now, or if they’re things that you can put off for a little bit while you build toward a more stable financial position. Alright so that’s it for this week’s episode, please take a second to subscribe to the show on whatever platform you’re listening on leave a written review both of those things are super helpful. Please also take a second and think of a friend who might benefit from this information and share it with them. And finally come connect with me over on social media. Let’s continue the conversation, my handle on Instagram is at I am rho Thomas and I’m on LinkedIn as rho Thomas. Alright friends, as we close out, I pray that you will identify any places you’re not making the progress you could be making, whether with your money, or other areas of your life because you’re giving in to instant gratification. I pray that you will take the time to explore how your trust and your own ability to achieve your goals plays a part in your trouble with delaying gratification, and as always I pray that you continue to take steps to regain control of your time, build wealth and live the life of freedom and choice, you deserve. Talk to you later.