Music Mondays – I Will Wait

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On the Right Path

When I first start working with clients, they are initially energized about getting themselves financially fit, but inevitably some time will pass and they will find that their enthusiasm has waned and the patterns of their previous life will start to creep back. One of the great services I think that I provide my clients is to constantly remind them of what they are working toward, and I work hard to keep them on the right path. It is not always easy. Financial fitness is not an overnight process, in fact it typically takes years, and if you are not focused on patience and understand that you will have to wait for results, it is easy to get distracted.

Identifying Weaknesses

My clients who were spenders before they met me have more challenges than my “saver” clients because they clearly struggled with delayed gratification. One of the first steps I take with these clients is identifying their “weak” spots or the expenses that are difficult to say no to, from that point on, we devise strategies for how we will combat these weaknesses. Some clients have issues with the “latte factor” where little expenses just add up and create big problems. Other clients have larger weaknesses for things like new technology or televisions. Each of my clients, though, is unique and motivated by different factors, so I am constantly creating new exercises to help them on their path to becoming financially fit while not burning them out or frustrating them along the way.

Inspiration comes from many sources

Last week when I blogged about investing, Ryan from Impersonal Finance commented that it would make sense for people to invest their money in the markets rather than in a TV or some other temporary item because you could actually make money investing. His comment led me to think about my “spender” clients who have difficulty waiting and lack patience when it comes to positive results. So I thought I would run a little analysis to try to prove the value of waiting and using your choices wisely. Visualization is a great tool when you are trying to accomplish goals, so I thought I would provide a visual for what waiting represents.

To TV or Not to TV?

First, I looked at the value of waiting to buy a TV or some other high priced investment. I assumed that you might be looking at a 55 in. LCD TV, and according to Best Buy, you could buy one for around $1,000 (or $999.99) to be exact. You could obviously spend more, but I used this TV to illustrate my point. Instead of buying this TV, I opened a brokerage account and invested it into a diversified portfolio of ETFs. I assumed that over time I would earn around 8% in this account, and based on these assumptions, at the end of five years, this account will grow to about $1,500. And, since you did not make this purchase (in our assumption world, instead of being down $1,000 now you are up $1,500), you could actually think of your account as having grown by $2,500 in five years.

tv savings

To Latte or Not to Latte?

Next I looked at the latte factor experiment, where I examined what you would earn if you waited on a $4.00 expense every weekday for five years. After one year, you would have saved $960, and I assumed that you opened a brokerage account with this money and invested it similar to the TV funds. At the end of the second year, you would have saved another $960 and added that to your investment portfolio. After repeating this three more times, you would have saved $4,800 in total or almost five televisions and with your investment returns, this account would be worth around $5,600. Since you did not make these purchases over five years, you could almost think of your account as having grown by $10,400 (again, instead of being down $4,800).

latte savings

You vs. the Marketers

I understand that there are billions of dollars in marketing campaigns that are aimed at getting us to not wait and indulge in our consumer desires; however, with some patience and focus, you can not only save yourself the money that you would have spent on these items, but you can grow your money through your investing. The next time you are thinking about a large purchase, instead of spending $1,000, think about how you can make $500. Or instead of spending $4 a day, five days a week for five years, think about making $5,600. It sounds so much better to think about making money rather than “depriving” ourselves of what we wanted to begin with. The hard part is remembering that the “making money” part takes time, but if you say to yourself, “I will wait,” you will be rewarded.

Are you good at waiting to buy something you want? What do you focus on to help you delay your gratification?

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Shannon is a financial planner who left a “traditional” financial services firm to start her own company, The Financial Gym, because she felt traditional financial services firms did not have the tools or resources to help people in their 20s and 30s who are starting out and trying to build assets while also managing debt. She realized that the key to long-term personal financial success is a commitment to financial fitness and making smart financial choices. Through her blog, Financially Blonde, her book, Train Your Way To Financial Fitness, her podcast, Martinis and Your Money and The Financial Gym, Shannon is committed to making financial fitness fun, easy and accessible for everyone.

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