Don’t put your goals at risk over impulses

What is it about human behavior that we so easily give in to impulse? Why is it that we don’t hesitate to spend $4 on a cup of coffee or $300 on a new cell phone, when our current cell phone works fine? We all have the urge to satisfy a short-term desire that often keeps us from achieving our long-term goals. This is very true with financial goals.

As a financial planner, clients share their life goals with me. A secure retirement tends to be a common theme many share. I will help people look at their assets and liabilities, understand their income and expenses, and map out a strategic plan of action they can take to work toward the financial independence they desire. It usually involves saving systematically and using tax-efficient savings accounts, such as an IRA, Roth IRA, or a 401(k) plan.

Many times I think my clients are well on their way to these goals and that my efforts have made a difference in the financial course of their lives. Then I get a call from the client who was on track, wanting to derail their plan, and more times than not it involves an impulse purchase, like a new car. By the time they call me, the purchase has been made and now they are trying to figure out how to pay for it.

Some people think an easy solution is to liquidate their retirement, pay taxes and penalties just so they won’t have additional monthly payments. I am usually successful in helping people understand why that potential “solution” really is not a wise one. I calculate how much they will pay Uncle Sam in taxes and fees and what they actually have left to pay toward the car, versus letting the investment grow over time at a nominal rate of return. When people take time to think through the purchase, they wish they had made a different decision on how to fund the purchase.

What usually does happen is instead of continuing to add toward their financial goals through their monthly contributions, they put their financial goals on hold by not adding to savings. Now those hard-earned dollars go toward paying off the new debt tied to a new piece of depreciating metal: their car.

So why don’t more people practice delayed gratification? Why can’t we wait to pay cash for the new car, vacation or latest cell phone? Why are we so quick to tell our children that just because they want it does not mean they get it, and yet our actions don’t support what we tell them?

I believe the key to long-term financial success, and ultimately a secure retirement, starts with controlling our daily impulse purchases through actions.