“Too many people spend money they earned to buy things they don’t want to impress people that they don’t like” –Will Rogers
It is that time of the year again, when advertisers and marketers are ready with alluring offers and too good to be true deals for you. It is time to get the tax refund and it is your choice whether you want to splurge your money or invest it in a low cost fund or IRA, but a careful evaluation of your financial goals will help you decide better. There are certainly great deals on the table and if you have always wanted a big-ticket item which is available at a discounted rate, it is smart to make a purchase. But many a times we all are easily persuaded by marketers to spend our hard-earned income on unwanted items. At that point, it is important to ask, “Whether investing my tax refund will help me achieve my financial goals” “Do I have enough to splurge on vacations and other luxury items without thwarting my financial goals?” It is difficult to resist temptation of spending money and enjoying a better lifestyle and it requires a great deal of self-control to save and invest that amount and grow your money tree. Believe me you enjoy expensive getaways if you don’t have financial worries and you have set aside enough for education and lifestyle. On the other hand, when you have to make a trade-off, it is wise to exert little self-control and defer gratification.
The famous Marshmallow Experiment was conducted by Stanford Researchers, which teaches the value of delayed gratification through an experiment conducted on children in the age group of 4-6 years, who were led into a room where marshmallows or their favorite sugary treat were placed on a table. The main purpose of this study was to find at what age a child develops self-control. The children in the experiment were given a choice to eat one marshmallow immediately or wait for 15 minutes and get two marshmallows. Most of the children ate their marshmallow as soon as the researchers left the room whereas some children waited full 15 minutes and earned a reward of an extra marshmallow or a sugary treat. The researchers conducted follow-up studies as well to see the outcomes. Children who waited 15 minutes achieved success in all areas of life whether it is their SAT scores or jobs or BMIs. So, the central idea is exerting self-control. As adults, we can learn from this famous experiment to exert self-control and make wise financial decisions. Here is how you can control your urge for splurging your tax refund.
Stop financial Distractions
The TV commercials or online ads are definitely distracting you from achieving your financial goals. Just like people who want to lose weight, shut their eyes or resist the temptation of eating a sugary treat, we need to shift our attention away from those commercials and ads. Similarly, in the Marshmallow Experiment, children used all sorts of techniques such as covering the eyes, turning away from the table and kicking the desks to shift their attention from the sugary treats. It is difficult to wait for 15 minutes, when you are a child. But, if they could do, we can do as well.
Invest Before you Have Your Refund
It is important to make a provision of investing the amount you are going to get from Uncle Sam. In other words, assume you are not going to get any refund at all. This means that you need to be harsh on yourself. If you have not filed your tax return yet, make such an arrangement that you schedule your payment into your IRA or 529 savings, the very day you are going to get a refund. If the refund money is in your account, you will definitely spend it one way or the other. But, if you have already set-up an automatic investment, you will refrain yourself from spending. This will help you come to terms with situation and you will be bound to shift your attention away to most important tasks in hand rather than going shopping or planning your vacations.
By following the aforementioned tips and taking cue from the marshmallow study, you can attain financial freedom and a true financial freedom is when dollars work for you instead of you working for dollars.
“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this” –Dave Ramsey