Recently, I read an excellent discussion on why we don’t save money. I originally intended to include it in my weekly roundup this week, but as I began to write my thoughts on the topic, I realized that I had a lot to say on the issue.
Erica argues that we spend primarily for emotional fulfillment and that the message that personal finance writers send out is the wrong one:
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.
Spend less than you earn is an easy mantra to repeat. It’s factually correct: by doing it, you will eventually get financially ahead. It’s also incredibly simple – anyone can spend less, and many people can earn more.
Personal finance is not just about dollars and cents. It’s about emotions and how we piece through the daily dilemmas in our lives. It’s about figuring out our goals and what the most important aspects of our lives really are. Doing a budget and living frugally doesn’t mean much if it doesn’t open our eyes to what our real values are.
The problem is that the average consumer gets emotional fulfillment out of spending. The guilt doesn’t come from the spending, it comes from the bills that come in later. People don’t feel bad about the purchase of a flat panel television – in fact, it’s usually a rush. The bad feeling comes when the credit card statements roll in and the paycheck isn’t big enough to cover it.
It’s that separation of feelings that creates problems for many people, including myself. Buying that $4 latte does bring happiness into my life, and it’s often hard to deny that little burst of joy. Many people say it’s worth it – those are the people who constantly encourage you to live a little.
Unfortunately, those are the same people who go home and dread looking at their bills, spending sleepless nights worrying about paying for everything and knowing that they’re just one false step from a financial meltdown.
Why are we in this state? Why do we derive an initial happiness from spending, followed by a later guilt? Why can’t we balance it all out easily?
My belief is that it’s due to a disconnect between spending and work. All of the money we have is the result of our work (or of the love of others). We invest huge amounts of our time doing things that aren’t as fulfilling as we’d like. I’d love to be in a situation where I could work in the garden all morning, drink lemonade and have a nice sandwich for lunch, work on my art in the afternoon, then prepare a hand-made artisan dinner for my family, but instead I work for others. At the end of a day, I go home feeling exhausted and spent, wondering whether it’s really worth it.
Here’s a shocking little experiment that somewhat proves my point. Figure out your net worth – the complete stock of all of your assets in your life minus all of your debts. Then figure out how many hours you’ve worked in your life. Divide the net worth by the hours you’ve worked. Over your lifetime, that’s roughly how much an hour of work is worth to you. For most people, that dollar value is frighteningly small – often less than a dollar per hour. Then, take that dollar amount and use it to see how many hours you’ll work (or have worked) to afford that television in your house, or that car in your driveway. Painful, isn’t it?
As our money becomes more and more abstracted from our work, it becomes harder and harder to really put personal value in that money. If we worked and were given food in exchange for that work, the connection would be obvious. Even working in direct exchange for cash in hand at the end of the day makes it clear. But when we work and have that money direct deposited, then we use our credit cards to buy things and use electronic transfers to pay those bills, that’s a lot of abstraction and the connection isn’t very clear. Since we’re unclear on the connection between a dollar and an hour of hard work, it becomes much easier to spend that dollar.
The key to solving the problem is figuring out how to connect the two feelings – the work and the money, the pleasure of spending and the pain of the bills – together, and the problem is that there’s no easy way to do that – and no method that works for everyone.
I think of it as a light switch in a darkened room. You’ll flail around in this room for a while, spending wildly, until you realize that you need help. So you start searching for the light switch, carefully and deliberately, but your finances are still in the dark. Eventually, you find the switch – and light floods the room. You’re suddenly able to see the connection between the two and it becomes much easier to keep your wallet in your pocket.
For me, the search for the switch didn’t take long – all I had to do was look into a baby’s crib and see my son looking up at me. For others, it takes a while – they hear the spend less than you earn mantra, but it doesn’t mean anything until they find their own switch.
In fact, today I often feel more emotionally fulfilled keeping my wallet firmly in my pocket. I no longer have bills screaming at me. I’m not worried about my family’s future. I know where I’m going and the picture as a whole fills me with a deeper joy than that little rush of happiness from buying a latte. On the occasions when I do indulge in a little treat, there’s no guilt later.
That’s a goal worth working towards.