The Stale Donuts Test & the Financial Disadvantages of Instant Gratification
In my household, you can often hear the phrase “stale donuts” thrown around. It’s a reference to a study conducted by Walter Mischel to test willpower. In his experiment, children were given a marshmallow and told that if they didn’t eat the marshmallow, they would be rewarded with another one in a few minutes. The study has subsequently been replicated on adults by using stale donuts with the promise of fresh donuts should the subjects abstain; hence our turn of phrase.
The purpose of the experiment was to test the subjects’ willpower and then track them over time to see how their performance in the experiment predicted future success in life. The theory was that subjects who displayed a lack of self-control would fair worse than those who were able to wait for the reward. My husband and I use the phrase “stale donuts” to promote delayed gratification. It’s a great reminder that practicing a little self-control can yield extraordinary results down the road.
A Rough Financial Start
This is especially true for our finances. My husband and I had a rocky financial start to our marriage. We were living on one income and had a combined $80,000 of student loans. Then I found out I was pregnant. We desperately wanted to pay off our debt and save for the future, but $80,000 was such a deep hole and the future was so far away. Every time we saved a little money, we found a new gadget we wanted or treated ourselves to a fancy dinner. And there was always the threat of an emergency just around the corner.
The first month we charged more to our credit card than we could afford to pay off was the wake-up call we needed. I sat down and created a budget that allowed us to enjoy our lives while still prioritizing our child’s college education and our future. We began to take on side projects to pad our income, and when our daughter was a year, I went to work full-time.
More Money, More Problems
And somehow our financial situation became more difficult. How were we worse off financially while making more money? Lifestyle creep was the new enemy. We worked hard for 40+ hours each week; didn’t we deserve to treat ourselves?
I imagine that many people working toward financial independence wrestle with the same issues. It’s hard to stay motivated to achieve a goal that’s 10, 20, or 30 years away, especially when it’s fun to own a fancy car or go out to eat instead of cooking dinner.
Sometimes the convenience and instant gratification of the stale donuts sounds way better than waiting thirty minutes for the good stuff. But nothing worth having was achieved overnight. So how do you keep yourself motivated for the long haul?
Visualize the Path
Focusing on the end goal doesn’t make the path any easier; it just makes the journey seem really long. Instead, focus on each step you need to take to achieve financial independence. How much do you need to save for your emergency fund, college tuition, or your retirement? Lay out step by step how much to allocate to each savings goal each month. Where should your portfolio be in 1 year, 5 years, 10 years to keep you on track? See yourself putting the money in each account, or better yet, automate it and remove the threat of your humanity.
Visualize these steps periodically. What will it feel like to have a net worth of $100,000? $500,000? $1 million? That feeling is worth the delayed gratification.
Understand Your Why
Why do you want to achieve financial independence? For me, being in debt makes me feel like I’m drowning. Plus, I hate that my creditors are getting rich off of my past poor financial decisions; I don’t want to give them one penny more than I have to.
I also want to be able to give my children the life I didn’t have growing up. My parents were terrible with money; the little we did have was quickly spent, to the point of making us homeless for a brief, unfortunate period. The drive to avoid repeating the same financial mistakes is greater than any shiny new gizmo or dream vacation.
Know Yourself
Be intimately familiar with your triggers so you know how to combat them. I forbid myself to go to Target because it’s my kryptonite. It’s like Target’s buyers are in my brain and somehow know exactly what to stock to make me spend money. So I avoid Target like the plague. In my town, Target is in the mall and has the biggest parking lot. I would innocently park in Target’s parking lot and walk through the store to get to the mall, but that somehow still cost me money. Now I don’t go to the mall. Problem solved.
When you understand your triggers, you can avoid them and, in doing so, adjust your bad habits. On the other hand, you can find ways to trigger yourself to build a good habit. For example, let’s say you discover that you’re spending $500 at restaurants, which you would much rather contribute to your emergency fund. At the end of each month, if you’ve successfully abstained from dining out and saved $500, go out and celebrate. It may sound counter-productive and it is to a degree, but one $50 dinner a month as a reward for staying the course is much cheaper than the $500 you were previously spending.
Understand Inertia
The law of inertia is Newton’s First Law of Motion. It states that an object at rest will stay at rest and an object in motion will stay in motion until an external force acts upon it. For many people, getting started is the hardest part of the journey to financial independence. Inertia keeps them at rest. The good news is that doing one thing to get your journey in motion, such as setting up auto-transfers from your checking account to your investment account, is likely to keep you in motion.
Develop a Growth Mindset
Carol Dweck is a psychologist at Stanford and the author of Mindset: The New Psychology of Success, which discusses how our mindset affects our ability to improve. According to Dweck there are two types of mindsets–a fixed mindset and a growth mindset. Individuals with a fixed mindset believe they are who they are; they’re constantly working to prove themselves rather than improve themselves.
On the other hand, “the passion for stretching [oneself] and sticking to it, even (or especially) when it’s not going well, is the hallmark of the growth mindset. This is the mindset that allows people to thrive during some of the most challenging times in the lives,” such as when your debt seems insurmountable or you need $10,000 in roof repairs thanks to Mother Nature.
Fresh Donuts
Educate yourself on ways to grow your income, invest smarter, and reduce your expenses. Understand that you alone are the greatest obstacle to your success, and work to control your bad habits. Accept that the road to financial independence will be long and hard, rife with market downturns and unforeseen expenses. Don’t miss out on the freedom that comes with achieving your financial goals because of a few stale donuts.