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.