The Gunners were right! Once you’ve got the money basics sorted, patience is really all you need.
It turns out that one of the key methods to grow your wealth requires you to do nothing much at all. At least, nothing much after you’ve set a few important plans in motion.
Once you’ve set your budget, automated your investing and/or superannuation contributions and refined your spending habits, letting time take care of things is what will see you through. However, it turns out that patience and money are often not the best of friends.
“With the pace of life today, it seems a lack of patience is pervasive across many facets, but when it comes to finance, there are some key culprits,” says Andrew Dunbar, Director and Senior Financial Adviser at Apt Wealth Partners. “For me, these are a lack of goal clarity, no clear decision-making process, and no plan. You wouldn’t decide how you are going to get somewhere without knowing where you are going, but without a plan, you are doing this with your financial decisions every day.”
We often think of “getting richer” as requiring a higher salary or additional income. But that’s not the case at all.
Money, patience and optimism
Morgan Housel, author of The Psychology of Money, says that he changed his entire investing strategy after learning about how money ticks. “My investing strategy doesn’t rely on picking the right sector, or timing the next recession,” he writes. “It relies on a high savings rate, patience, and optimism… I spend virtually all of my investing effort thinking about those three things—especially the first two, which I can control.”
Housel was particularly inspired by the story of Ronald Read, who grew up poor, worked his whole life as a gas station attendant and mechanic and bequeathed US$6 million to a hospital and a library and $2 million to his step kids on his death. Read grew this fortune by quietly investing the small amount he could save each week in blue-chip stocks.
And then he waited.
Bit by bit, each week’s tiny savings compounded over his lifetime to more than $8 million. This humble man’s fortune was so surprising that even his own family were baffled. But all it took was just a little patience.
The Buffet effect
Another case in point: our old friend Warren Buffet. Now, he’s long been a wealthy man, but the absurdity of his vast wealth today is that 99.7 per cent of it came after he turned 52 years old. And most of that came after his 65th birthday. You can see the graph of how his money grew over time here.
Not a lot happening on that graph for years and years, and then suddenly it starts shooting up like fireworks.
Buffet is known for being extraordinarily frugal. He lives in the same house he bought in 1958 and clips coupons to save money on Maccas food. But he’s also known for being extraordinarily patient.
“The stock market is a device for transferring money from the impatient to the patient,” is one of his most quotable quotes. More recently in a letter to Berkshire Hathaway investors he said that “a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at a board listing all of the S&P 500, will – over time – enjoy dividends and capital gains, just as long as it never gets tempted to make changes in its original ‘selections.'”
It’s fair to say that Mr Buffett is the poster child for patience and money. What he also said is that a lot of people just “can’t stand to wait”.
Improving your patience levels
What Buffett meant by that particular comment is that investors often pull their money out too soon. They don’t wait out the natural rise and fall of the market to stay ahead long-term.
If you want to improve your ability to stay put and let the market do the work, here are a few things to work on.
1. Put a value on your financial goals
“Everyone wants what everyone else has – and they wanted it yesterday,” says David Currie, Director at Wealthy Self. “The lack of patience comes from scarcity (for example, property prices). As long as you have a clearly defined goal and can stick to it, then you are more likely to persevere when it comes to the psychology of money and investing.”
Make good use of online calculators that estimate the return on your investments or the future balance of your super. Seeing the curve rise is a powerful way to see how patiently sticking with your plan will pay off in the long run. Keep those targets in mind whenever you’re tempted to spend money you should invest instead.
A quick way to work out your target: Rule of 72
2. Research your options well
If you’re going to be patient with money, you need to be confident in where you stash it. Do thorough research into any investment you make to ensure it will give you the outcome you’re looking for. Consult with a financial adviser if you’re not sure.
The greater your confidence level in your financial plan, the more likely you are to stick with it for the long term.
“Money is finite. What you spend today will impact what you can achieve tomorrow,” says Dunbar. “So every decision is a trade-off, but your plan and goals can provide a compass.”
3. Break your goals down
“To increase patience, the first thing is to have a plan with clear goals and milestones that you can celebrate and use to keep yourself accountable,” advises Dunbar.
If you want to be debt-free now, or you want to grow your investment balance now, then you need smaller goals than your main one. Because the fact is, your big goal is not going to happen NOW. It’ll happen LATER.
So, set some small goals that you can make happen far quicker. Try the snowball method to pay your debts off a bit faster. It’s a satisfying way to feel like you’re winning against debt sooner rather than later.
To get the same feeling with investing, try having a smaller goal to put your energy into. You might have a savings account clicking away towards an annual holiday. Taking that holiday while your larger investment goal keeps on ticking will feel fantastic.
4. Play the waiting game
It may sound contrary to expect you to wait to develop your patience, but hear me out. Learning to wait to buy things is an excellent way to flex your patience muscle. You’ll get better at it with practice.
Hold off on purchasing items over a certain amount for 24, 48, 72 hours (a week if you can manage it). You’ll most likely find that you don’t need to buy it after all and that saving becomes extra money you can plough towards your main financial goal. Win-win.
5. Be disciplined in how often you check your balance
It’s a really good idea to keep an eye on how you’re tracking, but don’t become obsessive. Part of being patient with your money is having a bit more of a ‘set and forget’ attitude. The more you can automate your money, the better.
Checking all the time will just tempt you to stray from your plan. Instead, have confidence that you’ve set yourself on the right path and then… go and do something else. Preferably something low or no cost!