Many people believe that they can never achieve financial success. If I told these individuals that there is one skill that will almost guarantee success in life – including financial success – they might guess the following:
Is it IQ?
Is it a special talent, like artistic or technical talent?
Is it the ability to get along with people, sometimes called EQ?
Is it being born into the right family?
In fact, it is none of the above. You don’t have to be particularly smart, beautiful, talented, or charismatic to become wealthy, or at least to achieve your financial goals. Being born into a wealth family clearly isn’t sufficient, since many such individuals struggle. Indeed, while all of these traits can be helpful, none of them guarantees success.
The single skill that does virtually guarantee success is something far less flashy and less obvious. It is the simple ability to delay gratification. In a recent TED Talk psychologist Joachim de Posada describes a now famous psychology experiment in which researchers gave a group of four-year-old children a choice between eating a single marshmallow immediately or – alternatively – waiting for 15 minutes in order to get two marshmallows. As one would expect, most of the kids – almost two-thirds of them – couldn’t stand the wait and popped the marshmallow into their mouths almost as soon as the adult researcher left the room. The other third, however, summoned up the fortitude to make it through the waiting period and were rewarded with a second marshmallow. That was 100% return on their investment in 15 minutes, though I’m pretty sure none of them thought of it in those terms!
As interesting as this first part of the experiment was, more interesting still was the longitudinal component of the study that followed both groups of children into adulthood. What the researchers found was that, 15 years later, 100% of the kids who had been able to delay gratification as four-year-olds were well on the path to success as adults. They had stayed in school and were getting good grades. They were happy and got along with their teachers. They were making plans for their lives. Most were going to go on to study at a college or university.
The two-thirds of the kids who ate the marshmallows immediately didn’t fare as well. Though some were doing ok, many others had dropped out of school or were getting bad grades. A number of them struggled with social or other problems. In other words, they were on an identifiably different life path.
Like a Laser
Why is this ability to delay gratification so critical? It is crucial because self-discipline acts like a laser; it allows individuals to focus and intensify the impact of their efforts over time. This is obviously true of goals that require long years of study and intellectual preparation, like the scientific and technical professions. Yet self-discipline – the willingness to pass up short-term pleasure in the service of a longer-term goal – is a near-universal trait for any successful individual, from business managers to sports stars to artists. Mastery only comes with long and focused effort. And, of course, those who have the tenacity to master a skill or a profession are likely to make more money over their careers than unskilled workers. This ability to earn money is the first component to financial success.
Learning to Play a Different Game
Merely making a decent amount of money, however, doesn’t guarantee long-term financial success. Some individuals who have worked long and hard to achieve career success are never able to apply the sameself-discipline they used to rise in their profession to the task of managing their money and planning for the rest of their lives. The case of sports stars seems particularly obvious. Sure, it took a lot of focus through high school and college to make it to the pros. But then, all of a sudden, life gives these players a different game to play, and many don’t make the cut. Though exact numbers are difficult to come by, sources agree that many professional football players either declare bankruptcy or simply ‘go broke’ within several years after their careers end.
In fact, studies have shown that money skills, like sports skills, need to be encouraged and developed over time. And asking someone who grew up in a family of very limited means to suddenly deal with a multi-million-dollar salary is like asking a kid with no prior experience or training to compete in an Ironman.
Be A Two Marshmallow Person
The good news is that you don’t need to make an NFL player’s salary to achieve reasonable long-term financial goals. All you need is to apply the same self-discipline, the same ability to apply delayed gratification to your financial goals that you used to achieve your career goals. This ability to delay gratification takes three important forms.
Find Ways to Save. The first discipline is the willingness to save. Find ways to be happy spending less money than you could. Most people know this, in theory at least, and yet it is surprising how few actually do it. Wherever possible, make it automatic. When you get a raise, try not to immediately ratchet up your lifestyle. Within 6 months any new spending will have lost its novelty, but if you don’t jack up your spending in the first place you’ll probably never miss it. Finally, if you get a windfall, say a big bonus or stock options, save the whole amount. Learn to live on your salary – your steady income – and don’t make the mistake of assuming that incentive income is ‘normal.’ If you grow your lifestyle to fit your raises and stock option income, I can pretty much guarantee you that you’ll never feel like you have enough. And learning how to feel like you have enough is the key to a happy financial life.
Keep Working On the Plan. Saving aside, there are others ways in which delayed gratification can be your superpower. One of these is the ability to ‘not be finished’ immediately with your financial planning activities. Most professionals’ financial lives are complex and demanding. Yet many, many people want to spend a couple of hours, get a simple answer, and then not think about all the financial stuff anymore! Yes, you can work through a complete financial plan in a reasonable amount of time, but it’s probably going to take more time, effort, and thought than you had anticipated, at least if you do it right. Hopefully you can learn to enjoy the process itself – after all, it puts you in charge of your life – but even if not, you’ll be smart to delay that feeling of “I’m done!” until you truly understand where you want to go financially and how you’re planning to get there. If you jump right to the first marshmallow and quit the planning process prematurely, you’ll definitely be short-changing yourself.
Bounce Back from Life’s Punches. Finally, your life’s not over ’till it’s over. That means that even decent savings and an initially well-thought-out financial plan may not be enough to see you through. Life tends to throw us punches. The key is to be willing to stay with it, to revisit topics that you thought you had put to bed, perhaps even to explore things you hadn’t considered before. In other words, financial planning is a process, not a point solution. Doing it right requires disciplined effort over time.
Were you planning to work for your company ’til the age of 65? What should you do when you get laid off at 57? Were you counting on an inheritance from your parents? What should you do when your Mom has a stroke and needs to spend down her savings to care for herself? Were you planning on normal costs associated with your growing family? What should you do when one of your children has special needs? The list of such ‘what ifs’ is very, very long. But if you’ve cultivated the self-discipline to tackle each such curveball life throws you along the way with honesty, thoughtfulness, flexibility, and creativity, then I guarantee you you’ll be able to build the best possible outcomes for yourself and your family.
Want to keep those marshmallows coming? It’s up to you.