Making better choices
is not always this easy

 

Newsletter Archive

Why the Marshmallow Effect Could Derail Your Retirement Plans

Posted On: Monday, July 1, 2024

“One must learn to give up momentary, uncertain, and destructive pleasure for delayed, restrained, dependable pleasure.” (Sigmund Freud)


What is the marshmallow test?

The test was devised by Walter Mischel, a Stanford University psychology professor, in the 1960s. While the test has undergone many tweaks over the years, at its essence it is exceedingly simple. Mischel would put a marshmallow in front of a four-year-old and promise them a second marshmallow if they could resist eating the first one for 15 minutes. He would then leave the room and observe what went down.


The prosperity principle

In financial planning, delayed gratification means resisting the temptation to spend money immediately and instead saving or investing for future benefits. It's about harmonising today's desires with tomorrow's needs, like saving money for retirement rather than spending it on non-essential items. Delayed gratification involves self-control and long-term planning.

In our experience as financial planners, one of the most prominent tests investors face is balancing short- and long-term investments. Even the highly educated can find it challenging to align short-term investment decisions with long-term goals such as having enough retirement capital. It takes a lot of discipline to get the balance right.


Warren Buffett’s Wimpy lunch

It’s no coincidence that many successful businesspeople delay gratification and live frugally, even when they can afford not to. Years ago, a couple flew to Pretoria for an appointment at the Australian Embassy. En route to the meeting, they saw Warren Buffett of all people eating with colleagues in a Wimpy restaurant! If Warren Buffett can eat at the Wimpy, you can resist the temptation to buy a new BMW…


The long shadow of instant gratification

The long-term consequence of caving to the need for instant gratification is financial stress – one of the worst stresses around. A failure to delay gratification can quite easily result in being unable to retire comfortably and independently. 

The adult equivalent of eating that marshmallow as soon as the professor walks out the door can take many forms. It could mean buying a big house to keep up with the Joneses, splurging on an expensive car, or buying a new iPhone whenever a new version becomes available. 


The measure of delayed gratification

There’s a very simple way of quantifying your ability to delay gratification: check your credit score. The better your financial record, the higher your score will be. If you’ve missed account payments or defaulted on a loan, for example, your score will be lower. You can check your credit score online on the Debt Busters website.

Your credit score can influence many things, and knowing where you stand is worthwhile. Your credit score can influence:

  • Loan approvals and interest rates
     
  • Credit limits on credit cards and loan amounts
     
  • The ability to rent a property
     
  • Employment opportunities
     

Give your credit score a revamp

Luckily, your credit score can be overhauled. Here are a few suggestions on how to improve it:

  1. Always pay your accounts and outstanding debts on time every month.
     
  2. Don't use your entire credit limit. Try to stay below 65% of what you are allowed. For instance, if your credit card limit is R20,000, your outstanding balance shouldn’t be more than R 13,000.
     
  3. Don't apply for loads of loans at the same time. If a credit bureau sees that you are asking a lot of different banks for a personal loan, they might assume that you are under financial stress. (The exception is if you are applying for a home loan from different banks for the same property to gain the best mortgage rate.)


Minimalism is the new black

Embracing a minimalist lifestyle often starts with decluttering, keeping only what is necessary or brings joy. In fashion, minimalism means having a versatile wardrobe of durable and timeless clothing that can be mixed and matched. The same applies to tech: there’s no point in having multiple gadgets that do the same thing – your phone can double as a scanner, for example. Minimalism can also be as simple as making your morning coffee at home rather than buying an expensive latte on the way to work.

Of course, there is a time and a place for instant gratification, but you don’t want to make a habit of it … Especially if it means missing out on the fluffy, pink marshmallow at the end of the retirement rainbow.

Please get in touch with us if you think you might need to change your financial habits to secure your future.

Please Register Below Or Login To Continue Reading.

Email
First Name
Last Name

2024

November 4 - Market Update: Reasons for SA Investors to Be Hopeful?
November 3 - Evolving Wealth Part 1: Gen Z, Trailblazers of the Digital Investment Era
November 2 - Why the Rand Shouldn’t Be Your Main Reason for Investing Offshore
November 1 - 6 Winning Strategies That Top Investors and Elite Endurance Athletes Share
October 4 - Market Update | US Election Is Too Close To Call, so Expect Market Volatility
October 3 - How Rand-Cost Averaging Could Help You
October 2 - From Vows to Verdicts: What Happens to Your Will After Divorce?
October 1 - With Gold at Record Highs, Should You be Investing?
September 4 - Market Update: Christmas in September if Rates Come Down as Expected
September 3 - Why You Should Keep Your Investment Strategy to Yourself
September 2 - Aligning Your “Wheel of Life” – A Beginner’s Guide
September 1 - The Big Question: Should You Buy a Home or Rent One?
August 4 - Market Update: Magnificent Seven Lose Their Magnificence in July
August 3 - Unsung Heroes of Insurance: Four Types That Could Save You Money
August 2 - Do You Recognise Yourself in Any of These Client Case Studies?
August 1 - Three Pot System 101: What You Need to Know Before 1 September
July 4 - Market Update: Financial Markets Welcome GNU 2.0 and New Cabinet
July 3 - Busting the Post-Retirement Jargon
July 2 - Safeguard Your Money: Look out for Phishing Scams
July 1 - Why the Marshmallow Effect Could Derail Your Retirement Plans
June 4 - Why Emotions and Investing Don’t Always Mix
June 3 - Demystifying Retirement Planning Lingo
June 2 - The Sandwich Generation: How Can You Deal with Family Always Asking You for Money?
June 1 - How the Elections May Impact Markets in the Months Ahead
May 4 - Market Update: Geopolitical and Economic Risks are on the Rise and Investors are Concerned
May 3 - Need to Know: Annualised Returns Versus Internal Rates of Return
May 2 - Investment Jargon 101: Your One-Stop Primer
May 1 - Do You and Your Partner Share the Same Money Values?
April 4 - Market Update : Will They, Won’t They? The Case for Lower Interest Rates Improved in March.
April 3 - Unpacking Diversification: What Really Counts?
April 2 - Zen and the Art of Financial Planning
April 1 - The Secret to Solving the Financial Rubik’s Cube? Consistency.
March 4 - Market Update: Initial Investor Vote of Confidence Dissipates in Wake of Budget
March 3 - The Most Important Part of a Financial Plan: Room for Error
March 2 - Diversification: Free Lunch or Fool’s Gold?
March 1 - Budget 2024: What it means for you
February 5 - Budget 2024: The Minister of Finance Wants to Hear from You!
February 4 - Market Update: US and SA Markets Diverge on Differing Investor Sentiment
February 3 - Tax Tip: Must-Do Top Ups in February
February 2 - Should Investing Be This Sexy?
February 1 - Is There Really Much Difference Between Investing and Gambling?
January 4 - Market Update: What Lies Ahead for 2024?
January 3 - Think You’re a Rational Investor? Think Again
January 2 - Did 2017 Change the Way You Invest?
January 1 - How to Avoid Getting Burnt by the Next Investment Bubble in 2024

2023

December 4 - Stock Markets Break Three-Month Losing Streak
December 3 - The Differences Between Life and Living Annuities
December 2 - Should you be an Optimist or a Pessimist With Your Money?
December 1 - How to Give Meaningful Gifts This Festive Season
November 4 - Market Update: The Effects of War, Higher Interest Rates and China on Equities
November 3 - Why do People Invest in Property?
November 2 - Retirement Planning: The ins and Outs of Nominating Beneficiaries
November 1 - Retiring Well is About More Than Money
October 4 - Why Your Marital Contract Really Matters
October 3 - How to Avoid Being Scammed by Email Fraudsters
October 2 - The Stock Market Indices to Watch When Monitoring Equity Performance
October 1 - Why do Some People Have a Problem Spending Money?
September 4 - The Difference Between Being Rich and Being Wealthy
September 3 - The Ins and Outs of Buying Offshore Property
September 2 - A Good Budget Doesn’t Limit Spending, it Prioritises it
September 1 - Should you pay off your home loan?
August 4 - How to Take Advantage of the Donations Tax Allowance
August 3 - Five Reasons why a Financial Windfall Must be Managed Carefully
August 2 - What’s Cooking with the Three-Pot System?
August 1 - Make Sure Your Family is Financially Prepared for When You Pass Away
July 4 - A Must-Have for Couples who Choose not to Tie the Knot
July 3 - Can Gratitude Make you Feel Better About Your Money?
July 2 - Four Ways to Make the Most of Retirement
July 1 - How to Invest When There’s So Much Bad News
June 4 - The Ins and Outs of Compulsory Annuities
June 3 - Who is Influencing Your Financial Decisions?
June 2 - R is for Rebalancing
June 1 - Don’t let Money Ruin Your Relationship
May 4 - Five Ways to Teach Kids About Money
May 3 - Much Ado About Risk
May 2 - Living Wills: A Must Have, Despite the Grey Areas
May 1 - What is True Wealth?
April 4 - How the 2023 Budget Will Impact Your Pocket
April 3 - Three Financial Imperatives for Women in Divorce
April 2 - Should You Ask ChatGPT for Financial Advice?
April 1 - Compound Interest: The Eighth Wonder of the World
March 4 - How a ‘Safe’ Fixed Deposit Might Still be Risky
March 3 - Thinking of moving to Australia? Bear these numbers in mind
March 2 - Avoid These 6 Barriers to Wealth Creation
March 1 - How Good do You Think You Are at Investing?
February 4 - Is Money Stress Taking a Toll on You?
February 3 - Why an Endowment is One of the Best Ways to Invest Offshore
February 2 - Why too Much of a Good Thing Can be a Bad Thing
February 1 - Invest With FIRE and Never Look Back
January 4 - Why Lottery Winners End up Broke: The Importance of Your Financial Context
January 3 - Discover the Freedom of a Tidy Portfolio
January 2 - Why You Absolutely Should be Investing in Education
January 1 - Four Simple Steps to Start the Year on the Right Financial Foot

2022

December 4 - What is This Volatility Risk People are Always Talking About?
December 3 - Why You Need to Watch Out for The Butterfly Effect
December 2 - 6 Ways to Achieve Financial Freedom
December 1 - Three Books for the Holidays
November 4 - The Question of Loyalty
November 3 - Why do we Even Have Bull and Bear Markets?
November 2 - Should I Buy a Holiday House?
November 1 - Put Stocks, Rather Than Socks, Under the Tree This Christmas
October 4 - Can You Take Out Life Insurance on Someone Else?
October 3 - Loss Aversion and Lifestyle Creep – How Behaviour Influences Saving
October 2 - Why Timing Might be Everything in Retirement – Especially in a Bear Market
October 1 - Get Rich - Stay Rich Eight Mistakes Wealthy People Never Make
September 4 - Capital Gains Tax: 10 Common Questions Answered
September 3 - The Risk That Many Investors Don’t Think About
September 2 - Much Ado About Regulation 28 and the Private Investor
September 1 - The “Two Bucket” Retirement Savings System: What is it and Why is it Important?
August 4 - Retirement Planning for Age-Gap Couples
August 3 - A Simple “50-15-5” Budget Hack for Women (and Men!)
August 2 - Does Your Family Need a Constitution?
August 1 - Women’s Month: Three Ways You Can Improve Your Money Health
July 4 - Five Things to Check When a Loved One Passes Away
July 3 - Rules of Financial Planning For a Special-Needs Child
July 2 - Why Your Financial Plan Should Cater For Possible Dementia
July 1 - Why Inflation is the Most Important Investment Benchmark
June 4 - How Relevant Is The 4% Rule of Thumb These Days?
June 3 - Why You Should Treat Your Finances Like Your Health
June 2 - Is Your Business Good Retirement Capital?
June 1 - With the Limits Raised, How Much Should You Invest Offshore?
May 5 - Quote of the Month: Challenging the Rejection of an Insurance Claim
May 4 - Financial Products: The Less You Understand, the More You Pay
May 3 - The Miracle of Investment Debit Orders
May 2 - Five Things to Think About as Interest Rates Rise
May 1 - Stay Calm When the Bear Prowls
April 5 - Quotes of the Month – The War in Ukraine
April 4 - Smart Ways to Give: During and After Your Lifetime
April 3 - Take These Three Steps to Break the Money Shame Spiral
April 2 - When Things Don’t Go According To (The Financial) Plan
April 1 - What Amazon and Ford Can Tell Us About Diversification
March 4 - Quotes of the month – What the NFT?
March 3 - How to Avoid Losing Your Life’s Savings to a “Tinder Swindler”
March 2 - The Different Ways to Invest: What Does It All Mean?
March 1 - Three Reasons You Shouldn’t Wait to Talk to Your Kids About Money
February 6 - Quote of the Month – Don’t Cash In Your Retirement Savings
February 5 - Should You Top Up Your Retirement Annuities Now?
February 4 - Don’t Let Delays in the Master’s Office Leave Your Family in Financial Distress
February 3 - Don’t Let Delays in the Master’s Office Leave Your Family in Financial Distress
February 2 - Three Reasons an Insurer Could Cancel Your Policy
February 1 - Investing: Men and Women See Things Differently
January 4 - Quote of the month – Stay invested!
January 3 - What SARS Says About Crypto Assets and Tax
January 2 - Three Ways to Leave a Legacy, And Not Just an Estate
January 1 - Red-Carding the Myth of The Rational Investor