Rewards for when you pay off a debt – why cost free ones just don’t cut it

Recently a reader made the comment that when trying to achieve a goal it is important to have a reward in mind so that it will act as a motivating force to help you achieve your goal. This got me thinking.

I couldn’t agree more about having a reward once the goal has been achieved. It will act as a powerful motivating factor.

Now here comes the tricky part. Imagine that I have a short term goal of paying off my credit card bill of say $1000. To motivate myself I use all the usual techniques. I write down the reasons why I should achieve this goal. I write down how I am going to achieve this goal. I visualize myself achieving this goal. I tell myself daily that I am making progress towards this goal.

But how will I reward myself when I achieve this goal?

I could give myself a nice pat on the back and say well done. The nice feelings of warmth and accomplishment should be reward enough. But for many this is not enough. For many there has to be a hard tangible reward at the end of the goal.

And this is where we have a problem.

Hard tangible rewards of value cost money. When trying to achieve a financial goal such as paying off a debt then the last thing you need is to be reward with something that put you in debt in the first place.

If we go back to the $1000 of credit card debt that I mentioned above, now imagine that I accumulated this debt by spending on the latest gadgets. Now imagine if my reward for paying off my debt was to be a small gadget. This gadget wouldn’t necessarily cost that much but it would be a good reward and motivator right?

Or take the case of a woman who has credit card debt caused by excessive clothes shopping who decides to reward herself for paying off her debt with a shopping spree.

The problem here is two fold.

First you are sending mixed signals to your brain. On the one hand you want to pay down your debt which was caused by overspending yet on the other hand to help you do this you are going to reward yourself with more spending. From a long term perspective this behavior is not useful when it comes to changing habits.

This leads to confusion at a subconscious level. Is overspending good or bad? It must be bad as we are trying to eliminate debt related to it or it must be good as we are being rewarded with it when eliminate the debt? Confusing eh?

The second problem is that if you do use a monetary reward to motivate then where do you draw the line? I saved $50 dollars this week so I deserve a reward worth $20? The monetary based rewards that you give yourself will probably be relative to what you achieve (as they should be – you don’t want a $5 reward after paying off your mortgage – more on this later). But how relative they are to the goal is completely arbitrary and at your discretion. What you might think of as an adequate reward someone else might thing of as excessive and takes away from the original goal.

The real problem – Value.

In order for a reward to motivate you it has to have value. Or put more accurately you have to value the reward. This is an important distinction. A one ounce bar of gold has a certain value – it can be easily defined by checking its price on the market. However something like a trip to the local amusement park has both a monetary value and an emotional value. The memories that you create on that trip will last long after the trip has finished.

Emotional value is the key.

The heading of this article states that cost free rewards simply won’t cut it when it comes to motivating. If the reward was free then why wait until the goal is achieved? Why not just take this non-monetary reward and have it now? Why not watch your favorite TV show when it comes on regardless as to whether or not you have achieved your goal? You may feel guilty for a while but who cares right? It didn’t cost you anything.

I know some readers will argue that it should always be cost free rewards. I would argue the same for small goals. However when it comes to monster goals like becoming debt free then I would suggest that the reward be made up of something that you would really really value. What I mean by value is emotionally value.

Would you like to get a family portrait or visit your favorite city for a weekend break as reward? These things cost money but the key thing is that the emotional value to you has to be large. You have to really want the reward and value the reward before it will ever motivate you.

But didn’t you just say that monetary rewards were bad?

The point I’m making here is that if you really really value the reward on an emotional level and not on a monetary level then the reward itself is a good thing even if it cost a few bucks. By valuing the reward on an emotional level you are in effect saying to your subconscious – ok there are costs involved here but I have worked my butt off to get here and I place huge emotional value on this reward. I deserve it.

How much to spend on your reward is entirely arbitrary but to be honest I would never want to spend anything more that 5% of the goal amount on the reward. Otherwise you really are defeating the purpose. For small goals I would try to stick to the cost free rewards but even a nice cup of coffee has a cost so again try to stick to the maximum of 5%.

Think of it another way. If you want something that costs $50 then set that as a reward and have the goal of saving $1000 to justify it as a reward. 5% of $1000 is $50 so  $1000 is your target. It’s just a different way of looking at it.

Will I charge my reward to my credit card?

No, that would defeat the purpose. Before you set out to achieve your goal you need to define exactly what your reward will be and how much it will cost.

This cost then needs to be added to your financial goal. So if your target is to pay off $1000 in debt and your reward is going to cost you $50 then you need to have an actual financial goal of raising $1050 – your original target plus your reward. At least that way you will not go back into debt to reward yourself for getting out of debt.

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