You know the “Target phenomenon” that is when you go into Target intending to purchase 3 items and walk out with several bags full. One of the reasons that I love psychology is that how we think and feel impacts every area of life including how we spend money. If you are looking to better understand your spending habits, here are some common pitfalls.
- Keeping up with the Joneses: We all know this one. All your friends have the Apple watch, so you just “must” have it. Or you cringe every time you see your 10-year old Honda sitting in your driveway right next to your neighbor’s brand new Bentley. Keep in mind that research shows that experiences such as travel lead to greater long-term happiness than material items.
- Impulse buying: This is even easier with the rise of one-click buying. I recently attended a conference and the evening prior, my portable Bluetooth speaker decided to call it quits. The next morning, while multitasking in the conference, within minutes I had a new speaker on the way (with 2-day free Prime shipping of course).
- Bargain hunting: How many times have you purchased a Groupon when you really did not need that service or item? We think we are getting a deal. But think about it. If we spend $50 on an item that was originally $100, yes we saved $50 and we also just spent $50 that we did not need to…such a mind trick.
- Retail therapy: Have you ever had a bad day and stopped at DSW for a new pair of shoes on your way home or better yet, spent the bus ride home swiping thru Zappos? Spending on a new purchase gives us a momentary high, a fleeting moment of happiness yet it is just that, fleeting.
- Money for love: Maybe a parent feels guilty missing their child’s baseball game, so they buy their child a toy when taking their child out for ice cream together would say so much more. Or a husband feels bad about an argument and buys his wife jewelry when a home-cooked meal would be just as appreciated. Again, we equate material items with happiness rather than focusing on experiences.
- The illusion of credit: Credit is an interesting concept…it allows us to spend money that is nonexistent. Yes, it is nonexistent; it is money that we do not have. When we do not have to pay immediately, we can avoid the consequences of our spending, in some cases for years as the credit card debt reaches into the thousands.
So now that you know some of the pitfalls, the next step is to STOP before you make that next purchase, think about your motivations and the difference between want and need, and then decide. View it as the “stop, drop, and roll” of financial decision-making.
I’m living so far beyond my income that we may almost be said to be living apart. – E.E. Cummings