It does seems counterproductive, doesn’t it?
Rewarding your financial discipline by dipping into those very same hard-earned finances sounds like something you should avoid. After all, shouldn’t more money in the bank or less debt to pay off be the reward in and of itself?
The simple answer to that question is, yes, of course – as long as money in the bank or less debt to pay off is a reward for you, then that’s great! But not everyone is motivated in that way and therefore rewards can be useful.
Personally, I like setting myself a material reward for achieving financial goals. I use them like a banner or flag to remember what I’m fighting for. However, it’s true that material rewards can be counterproductive if used incorrectly – if your goal is to lose weight and your reward for losing weight is to eat a box of donuts then it’s a zero sum game.
It’s the same with financial goals; as long as we follow a few principles when rewarding ourselves for achieving our goals, then material motivators can sometimes be a good thing.
1) Tie Your Rewards to Your Goals
One of the best ways to make sure that your material reward is used correctly is by tying it to the goal you’re trying to achieve.
Let’s say for instance that you run a blog as your side hustle and you’ve set yourself a monthly readership goal. A simple way to tie a goal to a reward is to make the reward something that will help you achieve a larger readership in the future – like purchasing a book about SEO marketing or one that will help you up your side hustle game, like DC’s book Hustle Away Debt.
Either way, one of the keys to using rewards effectively is to tie that reward back into achieving more of your goals. The benefit of this is that it helps you to avoid the pitfall of valuing the reward more highly than achieving the goal.
2) Limit Your Spending
A rewards system simply won’t work if you allow yourself to buy the things you want on an ordinary basis. A reward is only a reward if you have the discipline to wait until you’ve achieved your goal before purchasing the thing you want.
Limiting your spending will make sure the line between “rewards” and “things I want” isn’t blurred, thus retaining that sense of achievement upon accomplishing your goals.
3) Set Lofty Goals
The old acronym for setting goals is SMART, which stands for Specific, Measurable, Action-Oriented, Realistic, and Time-Bound. This is good advice in general, except for the Realistic part.
Setting realistic and achievable goals is good, but only for a time. The problem with achievable goals is that you achieve them – which is good, at first. The problem is that if you’re constantly setting and achieving your goals, then eventually the novelty of the reward will wear off.
In time you will need to wean yourself off of realistic goals and substitute them for lofty goals – things you aren’t sure you can actually achieve. Keep your goals challenging and by doing so your rewards will remain satisfying.
4) Learn to Internalize Your Motivation
Businesses throughout the US use material rewards to motivate employees, but employers and studies generally agree that external motivations only work up to a point.
This is because over time material incentives begin to have diminishing returns and sometimes even end up negatively affecting our ability to achieve our goals.
This is called over justification and it’s the biggest danger of using material rewards. It’s a phenomenon whereby, after a certain point, material rewards can actually kill an individual’s internal desire to accomplish their goals.
It’s thought this happens because the material reward itself becomes the focus, when in reality it should only be a supplement to our own internal desire to achieve.
Ultimately your aim should be to cultivate a motivation that comes from within you – an internal desire to achieve your goals aside from rewards. Once you master this level of motivation, material incentives will become secondary to the satisfaction that comes with achievement.
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Rewards may sometimes get a bad reputation but they are neither intrinsically good or bad: they’re simply a tool – one that can be positive when used correctly and negative when used carelessly.
Achieving your financial goals is fairly similar to achieving most other goals in life; the key is to not allow rewards drive you but rather focus them back into helping you realize more of your goals. As long as your rewards meet this criteria, then there is nothing wrong with using them to help you accomplish your financial goals.
Does a reward system help you accomplish your goals? What are the problems you encounter with material rewards?
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I like the idea of tying your rewards to your goals. Sometimes the rewards we give ourselves end up hurting our progress towards our goals (like cheat days for dieting, or buying expensive items for budgeting, etc.). This has got me thinking about some relevant rewards I can give myself for accomplishing my 2016 goals.
A lot of our savings/earnings are set up specifically so we can do things that cost money. So the reward is the reason we save money (like when we save up for a vacation or something like that).
I will say that when it comes to side money, I set aside about 25% into a splurge account so that we can buy whatever we want… it came in handy when we wanted to buy a mattress :)
Great suggestions. One of the things I discuss ad nauseam with my wife and some friends is the idea of finding financial balance; that sweet spot between living for today and preparing for tomorrow. My experience has been that developing and managing a plan helps to stay on course for those future goals and still enjoy the present.
I believe that it’s a good idea to reward yourself for good financial habits. I like tying the reward to a goal. It’s a similar idea to a car salesman getting a bonus and other perks after surpassing the quota. I believe that rewards can make people work harder without too much stress and pressure.
I always reward myself with something even a small thing or a product when I reach a saving goal. This reward serve as a consolation for working hard on achieving such goal.
I’ve never thought to reward myself for good financial habits. It’s an interesting concept. On one hand it can help motivate you to get to a goal faster. One the other hand it could get you into debt depending on what it is.