Nick Wharton* says the lies we tell ourselves to excuse our spending are remarkably consistent, so it’s wise to learn how to recognise them.
Photo: Karolina Grabowska
When I turned 40 earlier this year, I decided to celebrate in style with a theme party at a local pub.
When I went to a party store to buy decorations for the event, I went a little overboard with balloons, streamers, hats, and kitsch.
I’m only going to turn 40 once, after all, and I wanted to enjoy myself and throw a fun party.
As I was cleaning up many of the unused decorations after the party, I realised I had fallen victim to one of the classic money blunders: using a special occasion as my rationale for overspending.
Humans are good at coming up with rationalisations for spending money.
But the lies we tell ourselves to excuse our spending are remarkably consistent, and we can recognise these rationalisations while they’re happening.
The next time you find yourself using one of the following excuses, stop and ask yourself if you’re rationalising your spending.
‘It’s a special occasion!’
The special occasion excuse is the very reason the staff at the party supply store were so happy to see me.
It feels wonderful to spend money to celebrate, whether you’re marking a milestone birthday, giving holiday gifts to your loved ones, or commemorating a major life change like marriage or graduation.
However, as good as it feels in the moment to spend money for these reasons, special occasion bills are just as painful to pay as any others.
The boost you may feel for being the hostess with the mostest or the uncle who gives the best Christmas presents will have faded by the time your credit card payment is due.
And that is hardly the way to ensure that you have happy memories of your special occasion.
If you find yourself excusing your overspending because it’s for something special, stop and think about what it is you truly want to get out of the occasion.
Take a moment to recognise what feeling you want to evoke.
Once you’ve figured that out, you can then determine how to do so without overspending.
‘This will save me money.’
My stepfather once went out to buy a single 5/16–inch wrench that he needed for a project.
Buying the single wrench would’ve set him back about $15.
But when he got to the store, he found a 44-piece wrench set with every possible size he could ever need.
The set cost $200, but he proudly told the family that the 5/16–inch wrench in the set only cost him $4.50.
By spending $185 more than he planned, he saved $10.50 on the particular wrench he needed.
We often rationalise a purchase with this kind of thinking.
We tell ourselves that spending money we didn’t intend to spend will somehow save us money in the future.
And retailers are fully aware of our tendency to rationalise purchases as a way of saving money.
(My stepfather’s wrench set helpfully broadcast across the top the fact that each wrench only cost $4.50.)
Asking yourself the following questions can be a good method of breaking through your rationalisations:
- Do I need this item?
- Would I buy it if it weren’t on sale or if it couldn’t save me money?
- Can I afford it?
Had my stepfather asked himself these questions, he certainly would not have come home with a set of 44 wrenches that he didn’t need.
‘I need this!’
Knowing the difference between needs and wants is the basis of personal finance literacy.
Recognising that you must prioritise your needs over your wants is the cornerstone of basic budgeting, and most people are well aware of the importance of doing this.
The problem with the needs-versus-wants education is that it provides us with another ready-made rationalisation for spending.
Anytime we can convince ourselves that we need an item, there is very little to stop us from overspending.
For instance, let’s say your car is on its last legs.
You need to get a new car because you have to have reliable transportation to get to work.
But you convince yourself that you need a brand-new car rather than a reliable used one.
You’ve tacked a want on to your legitimate need in order to justify your overspending to yourself.
To avoid this rationalisation, ask yourself if your need could be fulfilled with a less expensive option.
‘It’s only $X.’
Spending a little bit of unexpected money can feel like no big deal, since you’re only parting with a five-spot or a tenner.
If this only happens every once in a while, you might chalk it up to the cost of living.
However, there are problems with the “It’s only $X” rationalisation.
The first is that small amounts add up quickly.
You can rationalise your way into some pretty hefty spending a couple of dollars at a time.
In addition, what you consider a small amount of money changes with your budget.
As you earn more money, you may go from thinking “It’s only $5” to “It’s only $50.”
While you may have the income to absorb such a change in your “It’s only” thinking, you’re still spending more than you planned and it will add up even quicker at a higher income level.
If you find yourself rationalising a purchase with “It’s only $X,” ask yourself what else you could do with the money.
Thinking through what the loss of that money actually means to you can help you overcome the rationalisation.
From rationalising to rational
Making excuses for our less-than-ideal choices may be human, but it’s not the best way to manage your money.
Taking the time to really ask yourself why you’re making the choices you are can help to end your rationalisations and start looking at your finances more rationally.
* Nick Wharton runs the online travel blog Goats On The Road, at www.goatsontheroad.com/.
This article first appeared at www.wisebread.com.
