Delayed gratification is passing up short-term gains for long-term rewards.
The ability to delay gratification is a major indicator of success. Short-term rewards are always zero-sum, meaning that a person’s benefits are directly offset by lost money, resources, time, or some other asset. People who focus on long term gains benefit from the power of exponential growth, meaning that the longer they wait to reap their rewards, the faster their rewards grow.
In our society, we are bombarded with the temptation to give into short-term gains. Fast-food, lottery tickets, shopping malls, bars, Las Vegas, just to name a few, all promise quick-fixes to our problems.
Consider a brand new college graduate who has landed his first job. He is getting the first decent paycheck of his life and wondering what to do with it. The short-term side of him wants to buy a new car immediately to symbolize his new status to others. He gets a $15,000 loan at 8% with a $300 payment for 5 years and buys the car.
A second college student in the same situation decides to invest $300 into a mutual fund yielding 12% for the same 5 year period while driving the old beat up car she drove in college. At the end of 5 years, she will not only able to buy the same $15,000 car with cash, but she will have $10,000 left to buy her first piece of investment property.