Worrying about money. It’s what we do. Why? Because looking down the road, we’re not saving much. Wells Fargo reports median savings for those 50 – 59 is only $29,000. Earning 5% over 20 years, that’s about $190 a month. Not enough for most people. Smart investing certainly becomes crucial. But, smarter spending is perhaps even more important and certainly more controllable.
Consumer debt levels tell us “smarter spending” isn’t really our bag. But, there are reasons behind those debt levels. So, to pursue a more financially attractive 2nd half, we start by looking at why we spend the way we do.
1. We don’t know what we don’t know – Do a written budget. Just do it. Then use it. Compare actual spending to your plan. Simply beginning to measure something will almost ALWAYS cause improvement. Plus, you can’t control something if you don’t measure it. Decide today to do a quick, simple budget. Follow it for a month. Every time we’ve done this, we’ve found cash we’ve found money. Fixing this one thing could fix a bunch of other stuff.
2. Plastic Numbs Us – When we use credit cards, we spend more. Reportedly, a McDonald’s study saw their average sale go from $4.50 to $7 when people use plastic. Researchers at Carnegie Mellon, Stanford & MIT concluded that our brains experience a pain-like reaction to the immediacy of using cash. Using plastic numbs us so we don’t experience the “pain.” So … could you pull out a pair of Fiskars and do the unthinkable?
3. Emotions - Spending is often how we pursue: happiness, self-worth & stress-relief. It can be our reaction to boredom or depression, and can also become addicting. A Psychiatric Times survey revealed 6% of Americans suffer from Oniomania – shopping addiction.
How we feel also impacts how much we spend and how we invest. Different emotions cause different reactions. Harvard University social psychologist Jennifer Lerner, PhD found we we tend to spend more when we’re sad, and that we take more risk when we’re angry. For more, click here to listen to Dr. Lerner discuss her findings. Bottom line, if you’ve just seen a tear-jerker, then don’t shop. And be careful logging onto E-Trade after a dustup with your spouse.
4. Won’t Adjust - Market Swings, Unemployment or Job Change, Foreclosures, Health Issues & Inflation … all kinds of scenarios demand we tighten our belts. But do we? Hoping that things will turn around is optimistic. But it may be foolish optimism. An important acid test: Ask yourself how you’d react to a situation if it represented a “new normal.”
5. Guilt Relief - When quality time is hard to find, do we buy things to make up for it. Do we buy “stuff” for our loved ones to make our absence more palatable? Not that there aren’t seasons where we have to work long hours or are away from home. That happens. And not that gifts aren’t nice, especially if our loved one’s love language is receiving gifts. But if we’re always gone, and always spending to make up for it, then it’s a double-whammy. Maybe a simpler life is the wise choice … but that’s a post for another time.
6. Entitlement – Maybe we were poor as a kid, or scrimped through years of college or graduate work. Either can leave us with a powerful sense that we deserve more now, even if we can’t afford it.
7. Anticipatory Spending – Ever KNOW your ship is coming in? Maybe a tax refund, or a bonus, or a raise from an expected promotion? Unfortunately, immediate gratification wins out more often than not. We don’t like to wait. But buying now and paying later ends up a much more expensive proposition for lots of us.
8. Can’t Say No – It could be our children, spouse, boyfriend girlfriend, parents, grandchildren, nieces, nephews, neighbors or friends. We keep spending or giving, when maybe we shouldn’t have. Don’t get me wrong, generosity rocks. Certainly there are times to spoil the grandkids. And certainly people run into circumstances where they need our help. In fact, many of us seem hard-wired to provide that help, making it hard to say, “No.” But if we always say, “Yes”, then there’s probably a great opportunity for everyone involved.
You may not identify with any of these … if so, congrats! Do tell … Leave a comment with the tips or disciplines or attitudes that helped you become a model spender? In the coming days, we’ll be looking at ways to do a makeover on the 2nd half spending front. Looking forward to making progress together.