The Key To Smart Spending Is Understanding Why We Make Decisions We Do

In the song "If I Had $1,000,000," Ed Robertson and Steven Page list a number of things that they would buy for their beloved - a car, a house, a (not real) fur coat, a llama or emu, a monkey and even Dijon ketchup.

But what they really want to buy is love. Ah, if only things were so simple.

We know we can't buy love, but let's look at how we would spend that imaginary million and what that spending reflects.

First, we would look at the basics - food, shelter and clothing. This spending tends to be around security. What do we need to have to feel safe?

What is financial security? To some, it may simply be being able to pay the bills as they come due. Others may view it as being able to do whatever they want whenever they want. Some view it as having a particular dollar amount - the number.

The point is that financial security is no more than a feeling. And feelings are fleeting. If your financial security is dependent on the number, for example, you will be making your money choices around something that is arbitrary and your moods will reflect how close or far away you are from that touchstone.

But money is really mostly feelings. Our imaginary spending will be to satisfy a number of different feelings. Unless we understand why we are making money decisions, we will be either unsatisfied, repeat money mistakes, or not get what we think we are buying.

We spend to feel good. Sometimes we spend because there is something that we value and feel our lives will be improved. It is healthy to spend to feel good when you are buying something that can have lasting impact for you.

If you love music or theater, a season pass to the orchestra, concert tickets or money spent on plays may give you pleasure that lasts far longer than the event. If you value travel, getting away - anywhere - may result in a lasting memories.

But spending to feel good is different from spending to not feel bad. Spending to avoid our lives may make us briefly feel better, but ultimately can be destructive.

We spend for connection. Having people over for a gathering or joining others for a night out, supporting causes, following a team are ways that spending brings us together. But I have seen parents use their money as a way to force connection with their children either by granting it or threatening to withhold it. This usually ends up causing division.

If you are making a gift, then make it free of strings. If there are strings, it is a contract. Contracts should have the agreements fully explained and involve a willingness of both parties to enter into it.

We spend for comfort. My wife bought me a swiveling chair that I sit in to read and watch our bird feeders. Every time I am sitting in it, I appreciate it. I certainly didn't need this chair, but I value it.

One of our clients with a lot of physical pain wanted a car that was easier for her to get in and out of. It was more than she would normally spend, but owning it provided her daily comfort.

Only you can decide what comfort means, though. I was talking with one of our clients and told them they had the capacity to spend much more than they were currently spending. His response, "I can afford it but it wouldn't make me comfortable."

Another client was spending too much and created a story around every excessive expenditure. The spending created discomfort and anxiety. Connecting to those feelings served as a good test for whether the justification was appropriate.

We spend for status. Nice things may make us feel good. But they also may be a way to represent to the world that we can afford nice things.

Spending because you like something is very different from spending because you want to show others you can. The problem with spending as a signal of your success is that you have no control over how others view it.

Some may be impressed, some may be disgusted.

We spend for others. When our spending is directed to others in the form of specific charity or a helping hand to someone down on their luck, we benefit the most if it is based on compassion as opposed to pity. Giving is regenerative.

It is a fun exercise to spend that imaginary money and then go through the purchases to see why you spent it the way you did. When you understand the whys, it may change the whats.

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