It has never been more tempting to spend money. Every day, we’re pressured to buy something, whether through traditional ads or targeted online recommendations. The messages are constant and persuasive.
Financial professionals like us spend a lot of time talking about how to save. But knowing how to spend well is equally important. And for many, spending is wrapped up in behavioral and psychological imprints of past experiences.
Unexamined spending can lead to extremes. On one end of the spectrum, you find over spenders who rack up debt and land in financial hot water. On the other end are those afraid to spend, depriving themselves of things they can afford that would give them pleasure.
Spending is unavoidable. Ideally, we find a middle path that allows us to cover necessities and spend on the things that truly bring joy, whether that’s hobbies, travel, experiences with your family and friends, or simple everyday pleasures.
So how do you engage in thoughtful spending? These tips can help.
Consider Your Values
One of the best ways to become a mindful spender is to spend in line with your values. Take the time to identify what matters most to you. These could be things like health, family, community, security, or creativity. Before making a purchase, consider whether it supports one or more of these values. Doing so can help you avoid potential behavioral traps, such as signaling – spending money to shape how other people think of us.
It’s one thing to buy a nicer car because you need it. It’s another to buy one because you want to broadcast status to neighbors. And if the purchase stretches your finances, the irony is clear: Spending to appear wealthy undermines your financial security.
Compare and Despair
Closely related to signaling is keeping up with the proverbial Joneses. Morgan Housel, author of The Psychology of Money puts it well: “There are two ways to use money. One is as a tool to live a better life. The other is as a yardstick of status to measure yourself against others. Many people aspire for the former but get caught up chasing the latter.”
When we see other people spending freely, neighbors renovating their kitchen or friends taking pricey vacations, it can create subtle pressure to match their choices. After all, we humans are deeply wired for connection.
But appearances can be misleading. The people you’re comparing yourself to may be financing those purchases or stretching their budget to maintain a perfect front. Before trying to match someone’s spending, revisit your own priorities. You may find that the security of living within your means is much more important to you.
Happy At First, but …
New things make us happy at first, but we eventually get used to them and return to our “usual” mood.
This phenomenon can have important implications for spending. Many purchases, the latest smartphone, a luxury car, a bigger home, promise lasting happiness. These items might provide a short-term boost in satisfaction, but that feeling typically fades faster than we’d expect.
Understanding this tendency can encourage a bit of pause before making big purchases. If it’s greater happiness you seek, whatever you’re considering buying likely isn’t the solution.
Being mindful of this can also help guard against lifestyle creep, where spending gradually increases as income rises without necessarily improving long-term happiness. Buying that bigger home requires spending more on things like taxes and upkeep, which may quickly make you feel out of control. Or as Housel puts it: “Sometimes the stuff you spend money on has so much influence over your autonomy…that it’s not clear whether you own things or the things own you.”
Think Before You Carpe Diem
Popular aphorisms encourage us to “carpe diem,” or “YOLO”. And on a fundamental level, that message has merit. Life is unpredictable, and it’s important to enjoy it. However, the idea also can be used to justify impulsive spending, allowing our present selves to win out over our future selves.
Consider a simple example: Spending $200 on a new pair of boots now may not seem like a major decision. However, if that same amount were invested and allowed to grow for decades, it could be worth thousands of dollars in the future.
This doesn’t mean you should never buy those boots, especially if you can afford them. The key is considering the trade-off and making that decision consciously.
A Plan That Makes Room for Living
It might be easy to think that financial advice is all about pushing you to cut back and save more. It’s really about finding balance. Together, we can build spending strategies that reflect what matters to you most, so you can feel confident about your future without putting your present happiness on hold.