For our family, a major part of the process of getting out of debt has been changing the way we think about spending money. Obviously, the mindset that we started with wasn’t working, so something needed to change. Search for information for terms like how to get out of debt, how to lower expenses, decrease spending. You won’t have to read very much before you start see the same information repeated over and over. There are only a small number of core financial concepts (for most of us) that we really need to learn and understand. They’re not complicated. So WHY DON’T WE PRACTICE THEM?
My last post dealt with questions I’m learning to ask before I buy a specific item. It made me think about why we spend money in general, and what affects our decision-making processes where money is concerned.
Ramit Sethi at IWillTeachYoutobeRich.com says,
“It’s not just about the information. It’s about acknowledging the psychological reasons we haven’t ALREADY done it.”
Why do we spend money?
I’ve been reading James Roberts’ book Shiny Objects: Why We Spend Money We Don’t Have in Search of Happiness We Can’t Buy* and he says in it that “quality of life and materialism were negatively correlated” in studies that he has read. That means that “money doesn’t buy happiness.” But we often think it does, or at least that it will provide a temporary relief from whatever stresses we may be suffering from.
We spend money because we feel good.
Every year after my daughter’s ballet recital, we take the family out to eat. It’s a fantastic family time: we celebrate our sweet ballerina, enjoying being together, catch up on the events of the past few weeks. And spend a lot of money at a restaurant. How many other events in our lives do we mark by spending money?
Birthdays, Christmas, weddings. A new job or a new house. All these occasions provide an excellent opportunity to spend money – sometimes a lot of it.
We spend money because we feel bad.
“Retail therapy.” Guys, chime in here – do men spend money when they are stressed, overwhelmed, sad, depressed…? I know women do. Something about going to the mall and buying a new pair of boots can make just about anything feel better…for a little while, anyway. I’ve spent money at McDonald’s because I was too overwhelmed to cook dinner. Bought new clothes because I was bored with the ones I had in my closet.
We spend money because we feel scared.
NoMoreRack.com is a “daily deal” site that I frequent. They often have good prices, and if I see something that I already plan to buy, I can save a good bit of money. But they are master marketers. They have truly perfected the art of “get it while it lasts” advertising. Their deals are generally for 24 hours, but some last only minutes as people snap them up quickly. We can be easily pressured into spending money if we’re told this deal is only good for a short amount of time. There’s a reason infomercials always say, “…And if you call in the next 30 minutes…” We’re scared we’ll miss a deal!
Sometimes, though, we’re scared of bigger things. Like illness (why we buy health insurance), car accidents (why we buy auto insurance), or even death (why we buy life insurance). These are legitimate expenses – don’t get me wrong. Fear in these cases causes us to make wise financial decisions. But often “wise” is not the result of our fear. For some who grew up in The Great Depression, fear of going hungry causes them to overspend on groceries. As teenagers (and sometimes too far into adulthood) we’re afraid of not being “cool”, so we overspend on clothes or shoes. Sometimes we’re just afraid of being perceived as not having money so we spend on status symbols – house, clothes, car – to make sure no one knows the true state of our finances. (Not you, I’m sure, and definitely not our family – but some OTHER people…)
We spend money because we feel confident.
This has been the downfall of many investors. Sure that a stock would rise, they’ve put all their money into it, only to see it fall and wipe them out. One major financial mistake our family has made is spending money (that we don’t have) because we’re going to get money at a certain point in the future. (You don’t have to ask how that’s worked out for us…) Sometimes overconfidence can be very bad for a budget.
We spend money because we have no self-control.
For Americans, this may be the #1 issue we face as we address our bad spending habits. We want something – we buy it. We are hungry – we stop at a restaurant. We’re uncomfortable – we fix it (and “fixing it” almost always requires spending money). We don’t want to stay hungry or uncomfortable or have a “want” that’s unsatisfied.
So how do we change our spending habits?
The first – and fastest – way to make significant change in a budget is to automate the financial decisions you have to make. This is why budgeting is such a good idea and can have a dramatic impact. Sitting down when you are in a rational frame of mind and making decisions about your money prevents you from making spur-of-the-moment (=bad) decisions when you run into any of the above circumstances (or a hundred others). It prevents you from making bad decisions, while forcing you to make good ones.
“Automate” doesn’t necessarily mean having bills auto-draft from your account or a computer making rigid decisions about spending. It just means set out certain criteria in advance for making spending decisions so that you’re not letting yourself make a decision when your mindset is compromised.
I’ve written about accountability before (and intend to write about it again), so I won’t go into detail here. Accountability is just about having someone who will call your bluff. Someone who won’t fall for your justification and smokescreen and excuses is a major deterrent to spending money.
(Today’s post is evidently brought to you by the letter “A” day.)
This is an ongoing process in everyone’s life. The circumstances of our lives are shaping us into different (hopefully better) people. My personal belief is that God uses all of these things to change our hearts. Whether you’re a spiritual person or not, it’s obvious that we could all use some “bettering” in our lives. This isn’t an overnight event, so as this process continues, we still need automation and accountability to start making a positive impact before we turn 82.
Understanding a little bit about why we spend money can help us shape better spending habits. Tell us some of the reasons you find yourself spending money. How do you keep yourself from spending money you can’t afford to spend?
*That’s an Affiliate link. Read more about affiliate links at our About Us page.