Don’t Eat the Marshmallow
When I speak with individuals or groups I often ask them this question:
What is the single most important factor for building and maintaining wealth? Is it:
High income? Possibly, as you need to have money to make money;
Education? College graduates earn on average $1 million dollars more over their career, than high school graduates; and those with advanced college degrees earn even more;
Time? Also a possible indicator, as time is one of the most critical factors in the compound interest formula; or
Plain hard work? This is probably my favorite answer.
Each of the above are good answers—how about all of the above?
Somewhat surprisingly, it’s none of the above. Yes, these can all be incredibly important factors for building wealth; it’s just that none of these can produce wealth, if you lack the most important factor, which is discipline.
I know many that a) earned high incomes, b) had advanced degrees, c) worked incredibly hard, d) had lots of time, but still had nothing in the way of wealth, because they lacked discipline. They worked for money, but never had their money work for them. This is where true wealth is built.
I also know many who made modest incomes and didn’t have advanced degrees, but because they exercised discipline by saving and investing they are wealthy. Why? Their money worked for them.
You may be asking yourself, what does any of this have to do with eating marshmallows?
Back in the 1960s a professor at Stanford University by the name of Walter Michelle conducted an experiment on delayed gratification with children between the ages of three and five. The researcher gave the child a marshmallow and explained that they would be leaving the room for a few minutes, but if the child still had the marshmallow when the researcher returned the child would get a second one. It was a test of delayed gratification, or essentially discipline.
The most remarkable result was that they followed these same subjects for decades later; they found a direct correlation between how long a child could wait for the marshmallow and higher life outcomes later in life. Amazingly, their ability to delay gratification was a more accurate predictor of their future success than even their IQ. They may have achieved higher SAT scores, higher levels of education, and other surprising life outcomes, such as lower average body mass index. This demonstrates that the ability to delay gratification is a powerful tool in building wealth; they had higher savings rates coupled with paying lower interest rates, due to better credit scores.
We are what we repeatedly do. Excellence is not an act but a habit.
- Aristotle
How Can You Develop Discipline?
Two factors I believe help: First, an understanding of what discipline can accomplish. When I show time value money calculations with clients and their adult children, they are amazed by the power of compound interest; these millennials then began saving for the future. Knowledge is indeed power, especially when it comes to building wealth.
Second, financial planning. By coordinating a purposive plan for people, one can accomplish phenomenal things. For example, if you have a financial goal to travel to the South Pacific in two years, as a once-in-a-lifetime trip, you will have far more discipline to eat out less, cut back on other unnecessary expenses because your focus is on the destination. In addition, if you want to volunteer at home and abroad, you may also find more discipline to save.
I believe that people who are having trouble saving haven’t imagined a future goal that is exciting or inspiring enough. Alternatively, they haven’t thought of a situation that is scary enough; like having to eat cat food in retirement—sad, but occasionally true.
Developing discipline, surprisingly, has more to do with one’s imagination than anything else; the bigger your future dreams, the smaller the challenge of controlling your current day spending becomes.
I often help clients understand the powers of discipline—how to harness it and most importantly how to create plans to help them pursue their most exciting life goals.
I hope you enjoyed this information. If you have any questions please feel free to reach out.
