If we are going to control our spending, we have to take a closer look at why we spend money. We may assume that we make purchases because there are things we want and need, but often, there is more to it than that. There are five reasons that people typically spend money:
An emotional response
Our feelings can play a major role in our spending habits. There are times when we may feel upset and decide that making a purchase will improve our mood. Other times we may be proud of something we’ve accomplished and decide to treat ourselves as a reward. Everyone has made these choices from time to time, and they can make us feel good at least in the short-term. It is important to be conscious of these choices and not let our emotions control our spending habits.
Keeping up with others
From the time we are children, we begin to form an image of ourselves in our minds. The kind of image we have in mind for our lives has a major impact on our spending habits. We likely picture ourselves wearing nice clothing, living in lovely houses, driving pricey cars, eating at fine restaurants, and taking enjoyable vacations, all of which can be expensive purchases. At times, the goals we want to achieve for ourselves are shaped by a desire to keep up with those around us. If we see a friend with a nice new outfit, suddenly we want one too. Seeing a family member moving into a beautiful home makes us want to do the same. A neighbor’s purchase of a new car is enough to make us want to head to the nearest car dealership immediately. It is important to keep in mind that while we are trying to keep up with the people around us, they are trying to keep up with us as well. This will serve as a good reminder to keep our purchases in check and be mindful of the choices we make about how we want to spend our money.
A really good deal
Who doesn’t want to feel like they have saved money? When we think we have scored a good deal on a purchase, we feel great. The temptation to “save” a few dollars can be very difficult to resist. The problem comes when getting something on sale becomes a purchase we didn’t really want or need to make. Always pause and ask yourself if you would really want to purchase the item if it wasn’t on sale. A sale alone should not be the determining factor in your spending decisions.
Rewarding hard work
We put in so much of our time and effort at work that it isn’t surprising we often feel, because we have worked so hard, we deserve a reward in the form of something we purchase. The danger is that unfortunately our money doesn’t always increase in proportion to how hard we work. Of course you should enjoy your hard-earned money, but be careful and cognizant that you don’t use your hard work as an excuse to go overboard with your spending.
Thinking you can return it later
You may give yourself permission to indulge in a purchase by telling yourself that you can always return it. You may even have the best intentions of doing so. The problem is, as soon as you purchase something, you begin to get attached to it. This makes it less likely that you will want to part with it and take it back once you have it. Don’t make the mistake of thinking that returning something will be easy. Typically, returns are only easy when we have purchased clothing that isn’t the right size for us, or when something is broken. Returns that are dependent on us changing our mind from when we first bought something are not so easy to rely on.
Shopping is a habit—not a necessity
Charles Duhigg in his book, The Power of Habit, addressed how to understand any kind of habit. Our focus will be on applying his knowledge and rules to our spending habits. In order to understand and control our spending, it will be helpful to view it through the lens of a habit.
Duhigg identifies a habit as being made up of three parts:
- The cue: This is the trigger for the habit. It might be a sight, smell, sound, person, location, time of day, emotion-anything that triggers your mind to go on autopilot when it comes to spending. It might be seeing someone walk by with a cup from your favorite coffee shop, going to lunch with friends to a restaurant where it’s a tradition for you all to order certain things, or the sound of an ice cream truck driving through your neighborhood. If it triggers you to want to buy things without giving it a thought, it is a cue. It takes effort to overcome the cue and avoid spending mindlessly.
- The routine: This is the behavior you want to change in the case of bad spending habits, or the behavior you want to maintain in the case of good spending habits. The routine occurs in response to the cue.
- The reward: This is anything that reinforces the routine and makes it likely that you will repeat the behavior in the future. It might be the enjoyment of the taste of the coffee or ice cream or the pleasure of dining with friends. Whatever it is, the reward is powerful enough to make your brain think the routine is worth doing again and again. The reward is the need that you try to fulfill whether you are consciously aware of it or if it is only in your subconscious.
The first step in overcoming a behavior that you no longer want to repeat is to identify it. Shopping habits are largely subconscious behaviors, so you first need to identify the routine and bring it to your consciousness so that you can begin to control it. Ask yourself what you are most likely to spend your money on and how often you spend money that you probably shouldn’t. Identify the types of purchases you make. The next step is to focus on the cue. The cue is the trigger for your behavior. If you understand what is going on around you and the emotions you are typically feeling when you decide to spend money, then you can work to stop the cue from activating your routine in advance. For example, it you know you spend money to reward yourself, come up with an alternative reward like visiting with a friend or watching a movie. This can disrupt the cue and keep you from spending money when you don’t really need to. Ask yourself questions about your state of mind and feelings before you spend money. Figure out the time of day and where you usually are when you are making purchases. See if there are people who are typically around you, or if you tend to be by yourself. If you can pinpoint what happens right before you make spending decisions, you can break the cycle before it starts.
Now that you are aware of the routine and the cue, it is time to focus on the reward. It is important to understand why you are spending money and how it makes you feel. There is some benefit you are getting from it and some desire that is being met, or you would not continue to do it. Figuring out the reward may prove difficult, so you may have to do some trial and error exercises to really identify what it is. Change your routine and see if you are still feeling satisfied. If you are, then you are on your way to breaking free of your habit. For example, if your reward is getting together with friends for a meal, but you overspend at a restaurant, change your routine. Maybe get together with them for a picnic at the park or have a potluck at your house where everyone brings a dish to share. You can still fulfill your desire to spend time with friends without overspending to do it.
It will take time and effort on your part, but once you have identified your cues, routines, and rewards, you can start to change your spending habits. It will be a work in progress, but every time you are able to break the cycle of your habit and spend a little less than you did before, it is a victory. Eventually you will be altering your spending habits to create new and hopefully better ones. Here are a few tips to help you get your process started:
