Many landlords and business owners are familiar with the concept of delaying gratification, to fund the start-up and growth of a property business that in later life can produce a meaningful income. However, it’s common for landlords and business owners to understandably focus solely on this without thinking too much about the final stage – when the business has been built, and the day arrives when gratification no longer needs to be delayed (yes, that day does arrive!).
This article looks at what delayed gratification means, why it’s usually an essential part of building any business, and also the longer term aspect.
Remind me, what exactly is ‘delayed gratification’, and why is it an important concept for property investors?
‘Delayed gratification’ refers to the concept of saving money to invest, by spending less on discretionary items such as cars, your own home, eating out, clothes, entertainment etc. The money saved is then accumulated and used to build a business (for the purposes of this article, let’s say a property rental business), which produces an income, and then allows the owner to have more future financial choice in life – whether that’s to exit a day job, retire early, or leave a legacy i.e. less now, for more later.
The challenge of course is that it’s human nature to want to spend all money available on the good things in life! And, the so-called ‘consumerist culture’ is ever-present,
with increasingly sophisticated marketing tempting you to spend, and the ‘keeping up with the Jones’s’ aspect of life (not helped by social media these days). In a consumerist world, it can be difficult to buck the trend and actively ‘delay gratification’ to build up a fund to build a business.
But WHY must I delay gratification?
The bottom line for most people when starting a new business is that they haven’t got enough cash to go out and buy all the income-producing assets that they would like to. So, to build up the pot of cash, sacrifices are needed i.e. actively choosing NOT to spend precious, and limited, funds on nice cars, too much eating out, clothes, entertainment etc. – instead choosing to reserve those funds for investment to build up an asset base and the resulting extra income stream.
And, as well as being frugal to generate the investment capital to start a property rental business, discipline also has to be exercised as the portfolio grows not to use the income that the portfolio produces to funds excessive spending – instead to continue to save, invest and grow, and over time convert an ‘acorn’ of initial investment capital into an ‘oak tree’ that throws off a meaningful income. The only issue is this usually takes several years to achieve!