Almost everyone has an opinion on how money should be spent. From hardcore savers to spendthrifts, to everything in between, these attitudes are usually shaped by our environment and upbringing. Don’t worry, I won’t be telling you how to spend your money. Instead, I want to highlight a few of the psychological factors that dictate our spending decisions.
Personal preferences
People are different. We all know and understand this, but we often fall into the trap of thinking what works for you must work for me, and vice versa.
You can spend money in a way that will make you happier, but there aren’t any hard and fast rules on how to do this. This is because the items and experiences that we spend money on are often a reflection of our upbringing and experiences in life.
For example, my parents really enjoyed taking my brother and I to different restaurants when we were growing up. I always assumed that it was because they enjoyed eating out. It wasn’t until a recent conversation with Mum that I discovered the reason she enjoyed doing this was because it was something that she never experienced growing up. So for her, the real joy came from being able to share this experience with my brother and I.
Decisions about what you spend money on are driven by personal experiences, so don’t fall into the trap of assuming that you need to be following the crowd.
Social influences
The desire to fit in and impress others has become the norm in a world driven by social media. Worrying about what labels you wear, what car you drive, how big your house is and where you holiday each year quickly turns into a competitive game of social comparison with those around you. The problem with this game is that it’s impossible to win… because there will always be someone who appears to be richer, happier and more successful than you. So why partake in a game where there is no possibility of winning?
Instead, focus your attention internally to what makes you and your family happy and fulfilled. Money shouldn’t be used as a benchmark of success or a measure of your personal worth. It should be used as a tool to live your best life and share experiences with those who are important to you.
Buying vs sacrificing time
Everyone’s familiar with the age old saying that ‘money can’t buy happiness’. Let me rephrase it for you…. ‘Money can buy freedom of time and freedom of choice, which can indirectly lead to happiness’. We all balance time and money in our lives. There are hundreds of decisions that we make each year where we use money to acquire time, or we sacrifice our time to acquire more money.
For example, you may sacrifice time early in your career to accelerate your earnings capacity. On the counter, you may pay extra to have your groceries delivered or your car cleaned, enabling you to acquire time back into your day. There is no right answer around how you should prioritise spending time versus money, as it will be dependent on your stage of life and what’s important to you. The next time you are making a spending decision, consider the trade-off between time and money, and how this aligns to what you want your ideal life to look like.
Saving vs spending money
Saving and investing money is a form of delayed gratification. You postpone immediate satisfaction for future benefits. This requires patience and self-control, as you’re sacrificing short term enjoyment for long-term financial growth. Saved money provides you with peace of mind and financial freedom in the future.
However, some people who are ‘good savers’ often find it difficult to spend money on things they would enjoy, because accumulating wealth becomes part of their ‘money personality’. Achieving financial fulfilment requires a thoughtful balance between saving for future benefits and spending for current enjoyment. Once you’ve done the hard work of planning for the future, make sure you reward yourself by indulging in the pleasures of today.
Spending money will look different for everyone. So do it in a way that aligns to your values and strikes a balance between living well now and planning for the future. If you have any comments or questions about this article, our adviser our always happy to help. Please email us at communications@capital-partners.com.au or give us a call on 6163 6100.
