Why You Can't Stop Spending Money
It’s an all too familiar situation for a majority of Americans: you just got paid two weeks ago, and you’re already out of money. You know you make enough to live more comfortably, but your money always seems to disappear. You find yourself saying “well when I get paid again,” or worse, you start putting everything on your credit cards just to float yourself until that next paycheck hits.
Money psychology
Odds are, you make a lot more decisions about what to do with your money than you even realize. Behavioral economists like Daniel Kahneman and Richard Thaler have won Nobel Prizes, largely for showing that your brain constantly takes short-cuts and makes automatic decisions without you putting in any conscious thought, and those decisions can be influenced by subtle changes in your environment.
A lot of people think money is numbers and math (which are definitely involved), but more than anything, money is about emotions. If you can identify your emotions and subconscious decisions around your money, you can begin to understand why you’re spending the way you are, and what to do about it.
Deborah Price, the founder of the Money Coaching Institute, breaks this down into 8 Money Types, and even offers a free quiz on her website to help you learn what your money types are. I highly recommend taking her quiz to learn a little bit more about how you view your money.
Common money pitfalls
Life costs money. Once you start reminding yourself of that, you can stop beating yourself up about the choices you make, and start to rewire your brain more positively. That being said, there are a few obstacles that tend to pop up again and again, stealing our money in the process.
Emergencies
This is the biggest money pitfall, and the one most people think they have no control over. It’s true, you can’t dictate when your car is going to break down or your basement is going to flood. However, you can control how you think about and react to these setbacks, as well as how you prepare for them.
Most financial experts say you should have an Emergency Fund, or a cash reserve sitting in the bank just to pay for these sorts of disasters. While a general emergency fund is certainly useful, it doesn’t do much for the part of your brain that’s prone to worry. After all, what constitutes an emergency? What if there isn’t enough there to cover it?
I suggest having multiple emergency funds for specific areas (although these can all be kept in the same savings account). Rather than just having $1000 in the bank for “emergencies,” have $250 to cover the deductible on your car insurance, another $500 for any home emergencies, and maybe the remaining $250 is earmarked for medical emergencies.
The specific categories and amounts will vary based on your specific needs, but the principle remains the same. By setting aside money for specific emergencies, you won’t have to stress about dipping into that emergency fund when the need arises.
Sales
We live in a consumer society. Almost everything you look at daily was specifically designed to try to sell something to someone, possibly even to you. It can be very easy to revert to your social programming and ingrained money habits, especially when it comes to sales. I know I’m guilty of spending way too much money at T.J. Maxx.
The best way to get out of this “it’s on sale” mindset is to go cold turkey. Unsubscribe from the emails, stop perusing the Pinterest boards, and start focusing on what you actually want. All of those things will still be there once you have a better relationship with your money, and you’ll be able to take advantage of them without feeling guilty.
You aren’t a bad person for spending too much on things you don’t need because they’re on sale. Remind yourself that you’re just falling victim to social programming and old habits, forgive yourself, and move on.
Lack of Planning
It’s Friday afternoon, you just got out of a long meeting, and you’re dead tired. You get in your car and start to head home, ready to start your weekend. On your way home, you stop at a takeout place you don’t really like (but is conveniently located) and pick up dinner for you and your spouse. “There goes $30 I’ll never get back,” you think to yourself as you head home to eat a meal you won’t even remember by this time tomorrow.
Does that sound familiar? You’re probably falling victim to the most common, and fortunately most preventable, money pitfall: a lack of planning. By not planning out what you would eat for dinner on Friday, you defaulted to the easiest option, even if it isn’t the most satisfying. By simply planning your meals for the week in advance, and maybe even meal-prepping them all on Sunday, you could’ve saved yourself the money and the stress of ordering the takeout.
Lack of planning doesn’t just relate to your diet, it constantly surfaces in people who are stressed about their money and living paycheck to paycheck. Maybe it’s over-drafting on your account because you forgot about your Netflix subscription, or maybe it’s something bigger like not being able to take a vacation because you never got around to putting money aside.
Having a financial plan is crucial to overhauling your money habits. You don’t have to become a spreadsheet master and track every single penny, but you should at least get a general idea of where your money is going, where it needs to go, and where you want it to take you.
How to Save Yourself from Yourself
Unfortunately, there is no quick fix to overhaul your money. Anyone who tells you there is is either naive or is just trying to make a quick buck off of you. Here at Hearthstone, my goal is to help you change your money habits so you can stress less about money and enjoy your life more, and a large part of that is laying the groundwork for new money habits.
That being said, your current habits are wired deeply into your brain and reinforced by yourself, your community, and society as a whole. It takes a long time and a lot of work to overwrite those habits with better ones, but there are certainly a couple of steps you can take to get started.
Clearly define your goals.
If you don’t know what you want, you can’t start putting your money towards it. Goals should be as specific and actionable as possible. Otherwise, you’ll keep delaying them. They should also be written down in a place you’ll see them regularly. If you aren’t constantly reminding yourself of this new goal, your old habits will kick in and you’ll never gain any traction.
For example, “I want to travel more” is an admirable but terrible goal, while “I want to go to Rome next September” gives your brain a lot more to play with, and gives you more accountability. You can begin researching flights, hotels, and restaurants in Rome. As you get more and more excited planning your trip out, you’ll also learn what it’s going to cost so you can begin to set money aside.
As a bonus, seeing that trip fund grow will further increase your excitement.
Automate as much as you can
You’re fighting a battle against an entire lifetime of programming and a society that reinforces the bad habits you want to break. It’s not going to be easy, and if you rely on willpower alone you’ll more than likely fail. An easy way to get around this is to automate as much as you possibly can.
Set up automatic transfers to your savings account to happen on the same day your paycheck hits. Even better, open a savings account at a separate, online-only bank and have your payroll department automatically put part of your paycheck in there so you never even see it. You can start small, but you need to start somewhere.
Automate every single bill and recurring expense that you can. The best way to do this is to open a second checking account (most banks will let you do this for free) just for your bills. Then, have enough money sent from your paycheck to that checking account to cover your bills every month, and set all your bills to automatically come out of that account. You’ll know exactly how much that is because you’ve developed a financial plan like we talked about above (you did do that, right?). Everything leftover can go into your normal checking account, and you’re free to spend it how you see fit.
We live in the 21st century, and automation has never been easier. Use that to your advantage to keep yourself from defaulting back to your social programming. You’ll be a lot less stressed.
Forgive your mistakes
This is far and away the most important thing you can do. Remember that you’re a person, not a robot, and that money is both deeply personal and deeply emotional. You are going to deviate from your plan and spend money on things you don’t want, and that’s okay. Forgiving yourself will take a lot of the stress off of you and allow you to focus on gradually improving, rather than on being perfect.
Why You Should Go Through the Trouble
Changing your money habits will unlock a lot of doors for you that you thought weren’t just locked, they were nailed shut. Even if you’re doing okay, there’s always room for improvement.
By breaking your social programming you can get out of the paycheck to paycheck cycle, start using your money to live a life that excites you, and just feel less stressed day-to-day.
You aren’t going to be perfect, and it’s important to allow yourself the freedom to make mistakes as you develop a money plan, decide what your goals are, and reprogram your brain to allow you to have a better relationship with your money.