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The Marshmallow Principle

The Marshmallow Test for Improving Your Finances

Everyone wants to have more money, but not everyone is prepared to sacrifice and adjust their habits. Following the tips below can help you better manage your personal finances and give your budget a little more breathing room.

Self-Control

The Marshmallow PrincipleThe modern world continually bombards consumers with the message that you can buy and enjoy whatever you want now with your credit cards without any financial consequences… after all, “you deserve it”. Unfortunately, there are consequences to profligate spending both individually and on a macro nation-wide level.

Author and business expert  Joachim de Posada wrote the book Don’t Eat the Marshmallow Yet! The Secret to Sweet Success in Work and Life. This pop psychology book is centered on the concept of delayed gratification and how self-control makes a distinct difference in people’s lives. For example, individuals who have a strong sense of delayed gratification will experience less unemployment and more financial stability.

In a review of the book, wrote: In 1970, Stanford University Walter Mischel and Ebbe B. Ebbesen conducted an experiment that they called the “Marshmallow Test”. They gathered about 600 kids (average age 4.5) and basically tempted them with a marshmallow, or some form of candy or cake… A marshmallow is then placed in front of him/her, and the child is given two options: to eat the marshmallow straightaway or wait fifteen minutes and receive a second marshmallow as an award… the follow-up “Marshmallow Test” studies have revealed interesting results. The children who waited the extra fifteen minutes ended up being more successful in their careers, studies, and life in general.

If you aren’t naturally a delayed gratification kind of person, but you want to be more successful… you will need to learn the secrets of delayed gratification.

Another reviewer put it like this: Why eat 10 Big Macs a month when you can have one filet mignon for the same amount of money and a lot less fat? Why buy the Rolex today when, if properly invested, you could use the money to retire tomorrow and own 10 Rolexes if you wished?

Applying the Principle of Delayed Gratification

Creating an Emergency Fund

One of the often-mentioned keys to financial freedom is to have an emergency fund. It is the perfect example of delayed gratification, i.e., having money set aside for future use, rather than spending the money now on fleeting pleasures… to succeed, you should put something aside to ensure against future calamity.

In fact, even those with credit card or student loan debts should start a small emergency fund. This will help them learn how to delay gratification and force themselves to make better financial decisions. It will also reduce worry and help you learn more about financial planning.

Using the principle of delayed gratification to make decisions

Refinancing a mortgage is a big decision, and many homeowners simply avoid the issue. But, refinancing a mortgage could result in reduced interest rates, which can help you achieve financial freedom and save money in the long run.

So, how does delayed gratification play into this decision? The first question you need to ask is, why are you considering refinancing? Are you doing it to pay down debt or to free up money to be spent on frivolous consumption? If it is the latter, you are not delaying gratification but accelerating it. And you are just digging yourself deeper into the hole.

But if you are restructuring your loan to be able to pay it off faster and reduce your overall debt, you are probably on the right track.

By using this lens to look at all your life’s decisions, you can use the marshmallow principle to drastically improve your chances for a successful life.

Image Source: OZphotography and freedigitalphotos.net

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