Hi, I'm Erica Douglass. I sold my business and "temporarily retired" at age 26. I write here about investing, setting goals, and entrepreneurship. Most importantly, I share lessons I have learned that can help you on your quest for financial freedom!
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Why You Don’t Save Money (Even Though You Know It’s The Right Thing To Do)
I bought a new car on Saturday. Even though I have railed against buying new cars in the past because of depreciation, and even though that money would have been better spent in an investment… I bought the car instead.
I know the financial facts that most people don’t - that less money spent on a new car can add up to millions over a lifetime. (That blog entry was how I talked myself out of buying a Mercedes SLK 350. Instead, I bought a Miata.)
Let’s get real, though. The $33,000 I spent on the Miata (after sales tax) could be invested. At 10%, it would return $275/month, every month for the rest of my life. Instead, I own a depreciating asset that will last me probably about 8 years before it will need be replaced.
I also bought a lot of art recently. I went for high-quality art from known artists, and bought at auction, so my costs were significantly reduced over paying retail at a gallery. Still, I spent $12,000 on art. Assuming it appreciates at 1% per year (art, thankfully, unlike cars, does appreciate a bit), I’m “only” passing up $90/month, every month, for the rest of my life.
Doing the math, I could have had $365/month, every month, for the rest of my life, but I gave it all up. Why?
The answer is the same reason you probably don’t have any money saved right now, and it will probably surprise you at first. When you look at it a bit more closely, though, it makes sense…
Why You Don’t Save Money
Spending money gives you an emotional “high”. Marketers know how to prey on your emotions so that buying that sports car, expensive cell phone, or high-end TV becomes not a negative cash-flow situation, but an integral part of how you define who you are.
Stop for a minute and think about this. I’ve lost count of how many people refer to their iPhone as an iPhone instead of a cell phone in conversation. Same for Apple laptops — it’s no longer a laptop, but a “MacBook.” (I use Apple products as a reference because Apple is undoubtedly the master of emotional branding.) Look back through your blog entries, chats, or text message logs, and you’ll see similar trends. Whenever you buy something based on emotion, you’re more likely to refer to it by its brand name. It is a subtle way of getting this point across: “I spent a lot of money on this. That means I am a more interesting person!”
And that’s why your savings account balance is probably close to $0…because product marketers have mastered emotional branding, but savers and investors ignore your emotional needs and focus on the numbers.
Three Quick Steps to Break the Emotional Trap
How do you turn the cart around?
First, accept the fact that you buy things based on emotion. The more integral the purchase to how you define yourself, the more likely you are to buy something based on emotion. If you’re constantly using your cell phone, you’re more likely to buy a more expensive cell phone — not because it’s more functional, but because you look better using it. Do not fight this or try to justify your purchase with logic. Simply accept that you have made past purchases based mostly on emotion.
Second, realize what emotional need made you buy the product! This is the biggest step, and also the most difficult. Try to distill it down to one or two words. Why did you buy the expensive cell phone instead of a cheaper one? Ignore the features (those are justifications!) and press inward. Think more deeply.
Today, I thought about what connecting factor would have made me buy both a lot of art and a new car. Oh, sure, there are plenty of facts (justifications.) Let’s get those out of the way first: art will appreciate in value; my current car had nearly 150,000 miles on it; my boyfriend needed a car to commute to work due to a change in the bus schedule. Now that you have all those out of the way, concentrate on how the purchase made you feel. I found that I thought the purchase (in both cases) would make me more beautiful.
You’ll know you have it when you think, “Oof.” The real emotional need below all the justifications will hit you right in the heart. It may make you a bit sad, as you realize that there is a lack in your life that you feel you need to fill with stuff. Don’t fight that. Embrace it. This is a process, and you will come out on the other end understanding yourself better.
Third, really think about that need, and become aware of other emotional needs, when you buy in the future. There’s no going back. What you’ve bought, you’ve bought. Don’t turn this into regret over what you have. In my case, I have much more beauty in my life now, and that makes me happy. But it won’t make me feel more beautiful to purchase things. That’s a big difference, and one that I must recognize when I make purchases in the future.
We Have Failed As A Society
I’m sad to type this, but I also hope this blog entry, and many more like it, will be an agent for change in the future. We have failed. Instead of teaching kids that their worth comes from within, we’ve given in to the marketing bandwagon’s “emotional blitz” and bought stuff that we thought would make us happy. Yet we’re just as depressed as we ever have been.
Personal finance bloggers and financial columnists miss the mark when they write, “JUST SPEND LESS THAN YOU EARN!!” It’s not about that. Those daily lattes the financial columnists love to target as a key component of being frugal…when we buy them, we aren’t thinking about the $4. We’re thinking “This latte will make me more happy (somehow).” Spending less than we earn won’t make us happy in the same way, and that’s why, despite the plethora of financial advice available, most of us are still in debt.
Once you identify what emotional need your purchases are fulfilling, you’ve made a huge breakthrough. The next step is figuring how to make investing and saving money fulfill that need just as much as the latte, cell phone, or new car does. This is something we all have to step up and do. We need to figure out, as a society, how to live emotionally fulfilled lives without resorting to spending. Until we do, no matter how much we earn, we’ll still be in debt up to our ears.
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24 Responses to “Why You Don’t Save Money (Even Though You Know It’s The Right Thing To Do)”
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Well, I call it (hand have for about 7 years) Being a Victim of Marketing.
Subtly, marketing makes you feel bad/down/sad if you do not own a product/thing/gizmo.
The best way to not fall prey to marketing is not to be exposed to marketing.
The best way not to be exposed to marketing is not to watch TV, and watch very few movies.
Also, one should restrain oneself on the internet, and should remember:
I am happy because of what I do for others, not because of what have.
@Chris - Excellent point. I do find I want more things when I watch TV. I think it’s more than marketing making us feel bad for not having something, though - I think a lot of us have internalized that. Also, I’d say instead of feeling bad for not having it, we feel that our lives will be better if we do have it.
Love your quote.
How can we change ourselves so that we are happy without constantly buying things? I’m working on this for another blog entry, but am interested in hearing thoughts/comments on this.
Hi Erica and Chris,
I’m doubtful. Erica, I’m sure you couldn’t help but succeed in business on a few substantial premises, one being to accept personal responsibility for every transaction and every interaction. The principle applies to “our” emotions, too. No point in blaming marketers. Just because their marketing “works” with your emotional state doesn’t mean it wouldn’t also “work” with a more “frugal” / “balanced” / “stable” emotional state if you still happened to want a particular product.
Why not be perfectly at peace with the fact that your hosting business, as many others, work partly because the totality of goods people desire include NOT ONLY big-ticket-far-in-the-future, frugal-today items such as houses or retirement savings, but also the joys and pleasures their work affords them today and keeps them going toward that or other long-term goals they might have. Do I want to grow my business to achieve more investment capabilities in the future? Yes. When, as a result, I travel quite a bit on business, does that mean I will have to forgo all the little pleasures on that long and winding road, be it an iPod or a ridiculously priced latte? No way! But would I get into debt for that? No way, again!
“We need to figure out, as a society, how to live emotionally fulfilled lives without resorting to spending.”
If you want to live emotionally fulfilled I’m sure it won’t help to avoid ALL spending at ALL COST (sic)… renouncing everything can make you fairly nervous, too. And if on the other hand you’re “emotionally fulfilled”, a cell phone, car or coffee won’t be able to affect you that much one way or the other.
“I am happy because of what I do for others, not because of what have.”
Well, I am happy if what I have or could have is a direct function of what I do for others. I believe though rarely articulated this is the kind of satisfaction people seek and along the road often find when they start their own business. Sure, there is the kind of hard sell you’re talking about, but the fact is that people respond much more to positive promises than negative threats. So marketers, whether for cell phones or for hosting, try to concentrate on benefits and gains when you buy, rather than loss when you don’t. One way or the other, your own ruthless judgment over your spending and emotions is your own responsibility, but I’m pretty sure that doesn’t translate into “cut all spending and live like a student forever” in all cases of all individuals.
If you’re emotionally empty, coffee car and cell phone surely can’t fill such that void. Should one blame their producers or marketers? If you’re not, they may be browny points or little rewards or the expression of your mature balanced approach to life, or whatever. Should one blame their producers or marketers? Because you can’t be sure of their “true” motives you could just as well assume that they want to render a service that “makes people happy” (which fundamentally they can’t, what they mean is they want to provide something that is actually wanted, whatever the individual reason may be). Often this is actually the case… etc.
Here’s to “victims of marketing”. Don’t be victims any longer. You don’t need to rid the “world” or “society” of all marketing and all spending. Just “get a grip”…
“There’s no going back. What you’ve bought, you’ve bought.”
Not true. What you’ve bought, you can sell if you find you erred. The difference in price is the price you paid for learning you didn’t “really” want/need something or it doesn’t help you in the way you thought it might. Fair enough, isn’t it?
I find one way to justify spending money on neat stuff is that what’s the point of saving and investing for the long term when you could be hit by a bus tomorrow? Then you’ll have spent your life being miserable because you can’t spend any money on yourself because it’s going into savings, instead of enjoying the fruits of your labour.
Given that though, I do have savings and investments and I tend to avoid large impulse purchases. Although that doesn’t always work.. it took me 3 months of um’ing and ah’ing before I spent $180 on a new lens for my camera, and yet sometimes my wife and I will go and spend $120 at a restaurant on the spur of the moment.
@dualogy - Thanks for posting! You say you won’t get into debt for purchases — that’s the one part of your post that stands out to me, because what I’m referring to is people who do get in debt for purchases, especially frivolous ones. You have a good attitude about money.
@Marcin - Not spending money on frivolous purchases doesn’t mean you’re miserable. I find myself more miserable if I don’t have the money to make a major purchase when I need to — especially if it’s something like car repair.
I know what you mean about restaurant purchases. It’s important to have a budget with various purchase categories and make sure you stick with it every month. For instance, my food budget is $550/month. If I can fit a super-nice dinner into that $550, then I do without hesitation or guilt. If I’d rather have a large number of not-as-super-nice meals, I do that. Perhaps I’ll post another entry that explains my budget.
I have essentially checked out of consumer culture for the time being. Having grown up in the Rust Belt during stagflation, I have years of experience having a good time without spending a dime.
Currently, the bulk of my spending is on produce and grocery items requiring cooking. Since I work from home, it’s easy to bake beans, or make chili. All in large quantities. My freezer is full of excellent chow! A dish of curried beans is coming out in 15 minutes. I may break down and buy a real wok though, and learn to do stir fry right.
The whole notion that having fun or feeling fulfilled *requires* spending money is ludicrous to me. Someone once told me the vast majority of rich people are rich because they buy their avocados on sale (this was back when avocados cost real money). I believe it.
BTW, when I buy art, it’s originals that I like, directly from the artist, who is making a living at art. I have 7 pieces.
To paraphrase Chris Rock, ‘What the hell are you eating for $550 a month?!?’ Seriously, I felt bad spending $300 a month on food.
Anyway, my position on money for other people is that as long as you know yourself and how you handle money, you should be alright. Don’t buy a new car if you know you’ll be tired of it within a car. Lease. And so on.
I know I have a tendency to overspend, so I always put away money at the beginning of the month, so towards the end, there is no emergency when I’m running low. Just go back and get the money already socked away. And if I don’t need the money? Great! Maybe buy myself some new bauble.
Great article. I have something very complementary coming up in the very near future on this topic.
Erica, this is interesting, but I wish you’d brought it back to your posts. Did you buy the Miata and art to feel happy? Or not? Why did YOU give up the $365/month for the rest of your life?
This is a great post! I certainly have made my share of ill-advised purchases in the past. Personally, I attribute most of that to being financially immature. It wasn’t until I hit the big 3-0 that I realized it was time to wake up and start saving for my family’s future, instead of frittering it away at Starbucks, Chevy dealerships and various electronics stores. I gave up coffee, sold my truck and now refuse to step foot in a Best Buy store. I do all this not because I am punishing myself, but because I have found other things that are more fulfilling. You are absolutely right, that is really the first step to making a turnaround, financially.
I think the root of the problem is the absence of proper financial management education in our schools. Its sad but our education system hasn’t evolved much since the days of an all Agrarian economy. The 3R’s are no longer suitable for survival in an increasingly complex and credit-friendly economy. Marketing is a big part of it, but our students need to be taught the basic principals of accounting and finance (Money Out > Money In = Bad News). I learned about personal finance the hard way (well by watching friends go into debt). But i like to think that if our schools could teach kids fiscal conservatism, they might be less susceptible to all the in-your-face ads and calls for Buy Buy Buy. Over-extension of credit is after all the primary reason our country finds itself in an economic tailspin. Maybe our bankers need a few refresher courses as well.
Great post. I never believe anyone who says they have total financial discipline. Everyone is a victim of marketing at some point.
In general, the more someone tries to advertise to me, the less likely I am to buy a product. When a salesperson tries to talk to me, I smile sweetly and say, “I’m sorry. You must have mistaken me for a customer” and walk away.
I beg to differ with your labeling of emotional attachment to brand names. I consistently look at ratings and performance of the products I am thinking of buying. I have only had problem after problem with PCs in my work environment, which require endless calls and visits from IT people. I chose Apple products because they are better quality, the company has native English speakers who provide customer support, and the computers I have not had a problem in years of using their products (BTW, no problems with viruses, either!).
I see it as a matter of buying the best product and having the tools to maximize my productivity.
We use to have home ex in school but now teachers have to spend time teaching the state exam. Teaching to cook economically would be great. I have worked on churches “help” groups I know what they buy and a slight change would have given food for much longer. I also saw a group on TV saying they had only had cigarettes and coffee for breakfast and their child a doughnut. The price of cigaretes and coffee would have brought a lot of food the price of dougnuts would bought oatmeal which would have lasted a long time.
Marketing and ads are one thing,but when you have to avoid your friends that are always talking about this trip or that new thing, it can make one feel like they are the only ones being frugal. I feel many people define themselves by what they have or don’t have. It’s not easy being frugal in a material world.
@Johnny - I wish I could spend less on food, but here in California, eating out is expensive. I’d definitely be able to spend less if I lived somewhere less expensive. I have cut this back somewhat by eating at home more often (my boyfriend likes to cook.)
@Trent - Thank you for posting this on the Simple Dollar! There was a lot of great discussion that came out of it. And, of course, having new visitors to this blog is always fun.
@bethh - Still working on another blog post about that. Please subscribe to erica.biz and you’ll get an email once I post it.
@Frugal Dad - I love your blog and read it regularly. I’m honored to have you stop by here and comment! Thank you for the post.
@mschmulen - Completely agreed.
@speedy - Ouch! I do things a bit differently. I only go into a store when I’m ready to buy something, and I stick to my list. Occasionally I will buy something on impulse, but I don’t go to stores at all unless I’m ready to spend. This keeps me out of trouble.
@Norma - I did Home Ec (would have preferred Shop), but I didn’t get much out of it. I still don’t cook. Fortunately my boyfriend really enjoys cooking.
@mary - Excellent point. I may write another blog entry about this. Thank you for pointing this out!
I will be looking for your blog entry on the subject. I am sure it will be a great read.
I’d like to how to get a 10% return on my money. Any advice there?
I’ve been quite well aware of the emotional purchases for years, and how the marketing people work on us. At the same time, I’ve made the frugal purchases before (cell phones are a great example) and ended up not having the functionality I needed or wanted. I refer to my iPhone as an iPhone instead of a cell phone because I use it as a mini laptop, an iPod player, to look up maps, to use Twitter without getting on the PC, to show photos and videos to people that I could potentially convert to clients (a HUGE factor in my purchase) and so much more.
Oh, and because as a photographer, it does make me look cool to my clients. When I flip it sideways while sharing photos with them, if they haven’t experienced it before, they oooh and ahhh.
I guess in a way I am using their marketing to enhance my marketing — and I am a brand of me, so it is really important to me that I do that.
At the same time, I follow the “don’t enter stores until I need something” rule, because it keeps me out of trouble. Especially at Target - that store has some power over me. Other stores, like Best Buy, I can go into and leave without purchasing anything.
In the end though, it really is about knowing yourself and being aware of what you are doing and the WHY behind it.
Now how do I get those 10% returns on investments?
@Christine - Great to see you over here! The thing is that you can do almost everything (’cept the flippy screen thing) with cheaper cell phones and service plans than an iPhone. I use my phone as a mini laptop, Twitter from it, play games on it…and I can upload to Flickr from it easily and view pictures on Flickr as well. But my phone is a Palm Centro, which runs $99 instead of $400, and my service plan is $60/month for two lines, 1000 minutes shared, including unlimited Internet access and tethering on both phones. I split the plan with my boyfriend and end up paying less than $40/month for my half out the door with all taxes.
Then again, I just bought a $30,000 car. So we all have some priorities.
A blog post on the 10% return thing is coming up. I have it slated for April.
Using your calculations on returns, you could easily have leased a honda civic or toyota corolla type of car with the interest on that 33k. That way, you’d never have to worry about repairs and always drive a new car every 3 years or even more savvy every 39 months, to get a better lease deal. Mid year lease deals are usually better value. With a lease you would only pay for what you use of the vehicle and not be putting all your eggs in one basket. Plus you could grow the principal and just get nicer cars every few years. True consumer/service based society. You’d have a free ride for the rest of your life basically. Something to think about…
Hi Gary,
It’s an excellent point, but I don’t like either one of those cars.
I could have kept my ‘99 Miata for a few more years, but just after I bought this car it required $1765 in repairs — and it will need more to get the A/C fixed. Older cars are sometimes more hassle than they are worth. Your point is worth considering for those who don’t mind cheaper cars.
-Erica