The psychology of spending money…

I listened to the Morgan Housel podcast over the weekend and he was running through the differences between the psychology of investing and the psychology of spending money. He’s sold over 4million copies of his book, so he knows a bit about these subjects.

Listening in, I found lots of theories that I’ve been thinking about recently and I wanted to share them as I’m sure they will be of interest. Here are some hopefully thought-provoking aspects of spending that are worth considering in relation to yourself and your own financial position.

1)      Spending money CAN buy happiness.

It’s certainly not the only route to happiness but be of no doubt, spending can improve one’s life.

2)      Unspent money (or saved and invested money) buys you future freedom and autonomy.

You have made a decision that you will put this money away to be spent by your future selves, which goes a long towards achieving financial freedom

3)       Leopards can’t change their spots.

People who have saved their whole life to fund their retirement, find it difficult to become spenders after decades of saving. The key to getting your future financials right is balance – spending and saving are both important in life.

4)      Money has two different elements to it. It can be used as a tool to improve your life, or it can be used as a tool to showcase how much you have, your status.

Lots of people really want to do the former – don’t we all? But actually people often end up spending money on things that they feel they ‘should’ spend their money on to keep up with what those around them are doing, even when these things don’t really improve their life. So, be mindful of what is genuinely important to you, commit to these things and spend your money on them. Then, and only then, will you actually improve your life.

5)      As above, money is a tool for people to use, however if you’re not careful, it ends up using you.

For example ,people get caught owning expensive things which end up as spiralling additional costs – i.e. fancy cars need expensive servicing, insurance etc.

6)       There is not a one size fits all when it comes to spending.

What makes you happy is as individual as you are.

7)      How you spend your money can be a reflection of how you grew up.

If you grew up in poverty, having a very nice car can be the ultimate expression of how you’ve managed to succeed. Alternatively, someone who grew up with extreme wealth might shy away from an expensive car as they don’t want to be perceived as being wealthy by the outside world.

8)       The more money you have, the harder is it to decipher what will make you happy.

It’s a game of diminishing returns – more money does not always equate to more happiness. You already have more than you need, so how do you choose what else to spend on?

I believe that if we’re going to make the most of the money we have and want to get the most out of what we do with it, we need to think about and understand our relationship with money. I hope these ideas will help you challenge your views and spark some new useful and valuable conversations. Let me know what you think.