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Patience is a virtue, especially when it comes to building capital. But as with most virtues, it's not always easy to muster, since it usually requires resisting temptations for gratification on the sooner side. Should you put the extra $1,000 earned this month in your retirement savings or use it to buy a new suit? Should you approve money from the firm's "rainy-day" fund to cover travel for senior executives (yourself included) to a lavish conference this summer or let it continue to accrue as a buffer for future challenges?
Such decisions - a type referred to by economists as intertemporal choices - are characterized by options that offer different rewards as time unfolds. That is, they contrast smaller pleasures or gains now with larger pleasures or gains later.
The usual advice for combatting the desire to spend money for short-term gratification has centered on using willpower to tamp down emotional responses. Squelch that craving for a shopping spree! Although this strategy certainly can work at times - especially since emotions like sadness have been shown to exacerbate financial impatience - it's not optimal. The big mistake comes from assuming that all emotions pose a problem for financial decisions and need to be controlled.
If you stop to think about it, not every emotion we feel is tied to present desires. Some, like gratitude, are associated with situations that involve accepting a short-term cost to further future gains. Feeling grateful reminds most people that they should expend capital - time, effort, or money - to repay another, thereby solidifying a relationship that might be beneficial in the future.
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Source material from Harvard University