Money Now or Money Later?

Delayed gratification is one of the main tenants of personal finance. Scan the front page of any major personal finance website, or read through the table of contents for any popular personal finance book, and you’ll see examples of delayed gratification.

We see this in tips and techniques like freezing your credit card so that you have to wait for it to thaw in order to make purchases on it, or by writing out a list of things that you want, waiting 30 days, and checking to see if you still want to make those purchases. Both of those are ways to trick yourself into delayed gratification.

Money Now or Money Later?

The reason that it is a personal finance cornerstone is because one of the major problems that we see in our daily culture is impulse purchases and a “need-now” mentality. We see this in the great show “Arrested Development”, where two of the main Bluths are purchasing a home that slowly gets upgraded from a modest 2 bedroom home to a mansion with a gatehouse (or two) because, “at least then you’ll have it”.

In opposition to this, the longer that you can go without the big upgrades, the fancy car, or the expensive home, the richer you will be. The longer you have your money working for you and not someone else, the more interest you will earn, and it will compound over time to earn you even more money.

So when it comes to big purchases, we all know that the best thing to do is wait as long as possible. Make your old car last for as long as possible, and wait until the right time to upgrade your major appliances. But what most people don’t realize is that there are lots of little ways that you are paying now instead of paying later – but they may not be bad.

Taxes

If you are employed, every paycheck that you receive has some taxes taken off of it. At the beginning of each employment, and at the beginning of each tax year, you’re allowed to choose if you’d like even more of your paycheck to go to the government. A lot of people chose this option, and for some, it is a good choice.

It means that every April you get a large paycheck back. You give up money now, to get money later. The major pro is that it is a forced savings account. If you’re bad at putting aside money, this could be a good way to set aside money that you won’t be able to touch until April of next year.

The downside, however, is that the government gets to hold your money for a full year before giving it back to you. In that meantime, you could instead be earning interest on that amount. So what’s better? That’s up to you and your finances.

Costco

If you spend a lot of money at Costco, then the Executive Membership at Costco is another example of Money Now or Money Later. In this case, you spend money up front to get the executive membership ($110). You then earn cash back on all your purchases over the next year, which you receive in the form of a cheque every year. If you’re doing the math, as long as you’re spending about $2000 a year, the Executive Membership is worth the expense now.

My wife and I, for example, don’t have kids but we do live close to a Costco, so this year we opted for the Executive Membership (sadly, after we had made some large purchases). It means that we paid more money now, but we plan to get enough money back so that it will pay for our Executive Membership for the next year, and so on.

Other Memberships

Locally we have a chain of stores called “Co-op” that are primarily gas stations, but they also have a few grocery stores as well. They are a membership gas station – in that you can be a member, but don’t have to be in order to get gas there. Like Costco, there’s a paid membership portion to joining the club.

However, the major difference is that it is a one time payment for a lifetime membership. This means that we paid the membership cost once ($27) and from now on, we will get an annual cheque back based on how much we spend at the Co-op stores.

It usually works out to about 5 cents per litre, plus a percentage of in-store purchases. At 5 cents a litre, that means that our membership will pay itself off after about 540 litres, which would be about 15 fillups for us. That would take us about 6 or 8 months, and anything after that is pure profit.

As you can see, some Money Now or Money Later choices are pretty straightforward, and others require a bit of math to determine the best course of action. It also depends on your immediate financial situation, as well as your long term financial goals.

So which Money Now or Money Later choices have you made lately?

Written by Alan Schram

Alan Schram writes about personal finance and his encounters with it in his everyday life. Alan is recently married and is looking to save money on expenses and reduce his debts.

6 Responses to Money Now or Money Later?

  1. Derek says:

    This is the basic principle of how all debt works. Get the money up front and agree to pay it back later. It can be a very sharp double-edged sword.

  2. I think that the decision for having the money now or later depends on a number of factors, especially current financial situation and one financial goals in the long run. The key lies in indepth research of what one is getting into, looking for the best alternatives that saves you money now and in the future and doing the math to determine the best option. I recently had solar panels installed…its pretty costly now, but in the long-term I think it will pan out not to mention am saving the planet…sort of :)

  3. Vivek Baghel says:

    Hi Alan,
    You shared a great & meaning full article ! Well as much I understand with this title ‘Money Now or Money Later” it just show only one this in mind ! If a person hard earning money now & he won’t need to get money in his future & if that person doesn’t get money now so definitely he’ll have to earn money later.

  4. Is it really profit though? I don’t know how Co-op works but with Costco you get a cheque that’s only good at their store. That’s not profit – it’s just a way for them to continue to control where your money goes. I also don’t think it’s delayed gratification. You’re getting money back on the purchases you make. You’re still getting what you want when you want it. They’re just giving something back for it. Which to me, isn’t profit and doesn’t amount to all that much.

  5. Hello Alan,
    This is a meaningful article. Money now or later really does not matter. The key is the financial condition that we are in right now as you have indicated. Perhaps, we have to prioritize things such as saving money and avoiding unnecessary expenses. We have to be prudent with our finances as well.

  6. Keith Guinchard says:

    Alan,

    Without sounding like I am too much in the weeds, this is the second article where you use the word tenant- “Delayed gratification is one of the main tenants of personal finance”. The word you really want to use is tenet. Tenants pay rent, tenet is a principle or a belief. Otherwise good articles, keep them coming.

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