Discipline and Patience

Discipline and Patience
People love to put undue pressures on themselves thinking they need to hit certain milestones by a certain age. Social media is a large factor as we are constantly comparing ourselves to our peers. Johnny has a new car, Bill just bought a new 2000 square foot house, Sally just got a job working for Google. This leads to keeping up with the Joneses where we are doing something in order to show that they have as much money as other people, rather than because we really want to do it. The only bar we need to compare to, is ourselves. If we are not doing better than ourselves, one, two or five years ago then there is cause for concern. But most of the time, we are all improving and becoming better versions of ourselves. We just don't celebrate it due to others' more impressive accomplishments.

The only bar we need to compare to, is ourselves

Comparison
Comparing our lifestyles or physical possessions can lead to extending oneself beyond their means not to mention being a thief of your joy. Studies have shown that living in the smallest or worst house in a neighborhood can lead to feelings of jealousy or inadequacy. Neighbor just bought a brand new Tesla, time to buy one yourself. The thing is, you don't know if your neighbor bought that car with cash or debt, but either way, it should not affect your life or how you see yourself. The car you buy should be purely based on your savings. Do you have enough money to buy a Tesla, no? Then you should not buy a new Tesla. It is easier said than done as humans are quite emotional which leads to irrational decision making. Which leads to another good point, don't ever make an emotional purchase. In fact any big purchase should be mulled over for at least a week. Setting your own personal goal, making a plan, reaching that goal is much more fulfilling than just buying what you want immediately with money you do not have. You will appreciate that new car that much more and you will be financially better off.

I Can Afford It
You can't. Just because you can afford the payment does not mean you can afford it. Well technically yes, but its a terrible idea and is just hurting your future self. Showing discipline and patience will save you in the long run. Let me explain. Say you want to buy a new Tesla Model 3 for $53.990. You don't have the money upfront so you decide to finance it, placing $7,500 down and paying monthly $657 at 6.84% for 96 months or 8 years. You can afford the monthly payments so you presume you can afford it, well technically yes, you will end up paying $72,692.58 for that 53,990 car or around $14,000 in interest. Now I don't know about you, but I don't have a spare $14,000 laying around so why would you pay that in an auto loan. Your future self is now $14,000 poor since you rob them with your auto loan interest fees.

You Can Save It
Instead what you could and should do, is take car payments out before you buy the car. Setup an auto deposit to place $657 into a TFSA mutual fund or ETF or even a savings account if you want to be safe. After 82 months (14 months sooner) at the minimum, not accounting for interest made from your invested money you will have enough to buy the Tesla, all while paying no interest fees. Quick calculations, your investment of $657 after 82 months at an interest rate of 7% would make you $14,810 speeding up your time to own a Tesla or giving you some bonus cash. Saving up for a vehicle is much more attractive with bonus interest $14,810 from your investments and saving you from paying $14,000 in interest to the bank if you took a loan.

The moral of the story is, patience and discipline are great for investing but also for purchases. Don't buy a house out of your budget just to impress your in-laws. Don't take your family on a 2 week trip to Spain just because your friend did. Let your budget decide where you will live, what car you will drive and where you will go on vacation (See also Intro to Budgeting). Debt isn't free and banks aren't lending you money out of the goodness of their hearts. You are the consumer and they are making money off of your impatience.

Delayed Gratification
There is a famous marshmallow experiment carried out by Stanford that would place a marshmallow in front of a 4 year old then tell them if they did not eat the marshmallow in 4-5 minutes they were given a second marshmallow. The children were followed up on every few years to see how they fared in life The study was later deemed partly flawed but the takeaway is that children that could delay their gratification, or not immediately eat the marshmallow fared much better in life. Self control is a skill that some are more gifted in naturally but we can all learn. Delaying your gratification plays into financial health as well as those that can delay a big purchase may realize later that they didn't really want that new car or toy as badly as they thought. They say, "The ability to resist immediate pleasure and invest in the future allows individuals to develop essential qualities such as discipline, patience, and goal-oriented behavior." Managing money utilizes all those essential qualities as well, leading to better financial health.

Living Beyond Your Means
Say you make $100 per month for easy math and you want to live a bit beyond your means because your friends are doing well so you want to spend like them, so you are spending $130 per month. Each and every month you are adding $30 to your debt bit by bit. 30 then 60, then 90, 120, 150 etc. That money is not free. Ignoring the interest paid, you will have to adjust your lifestyle one day depending on the amount of days you have been living beyond. Each month beyond will correspond with another month someday where you have to live on $70 a month (assuming income is the same). 20 months of living extra means 20 months down the line you will have to live on less. Most assume they will make more in the future and that their income will increase to $130 a month, which is true most of the time. Income does tend to go up over time, but there is still the issue of lifestyle creep where once you make $130 a month you will want the lifestyle of $160. Plus there is always the chance your income does not increase or something happens to affect your ability to make income.

Those that lend money will someday want to be paid in full in which case your lifestyle will come crashing down. Better to live within your means, even if that means living poor when you are in fact poor. Also if you make $100 a month you should really be spending $90 or even $85 so that you are saving for a rainy day or retirement, because unplanned expenses happen and eventually you won't want to work or be able to work anymore.

Its important to look at the larger picture when viewing purchases. Every purchase is essentially delaying your greater goal or your retirement. As they say, good things come to those that wait.

If you found this helpful and would like help budgeting or investing please email me at TaylorMckeeCoaching@gmail.com