The best part about being a financial planner is having so many honest money conversations with people from all walks and stages of life. It truly is a treasure chest of qualitative data that has provided remarkable insights and perspectives on how to think about spending.

Just the word “spending” can conjure up a variety of feelings.

What feeling immediately came to mind for you? Was it stress, pleasure, conflict, confident or something else?

With the financial pressures we are facing today with rising living costs, it is worth digging into my data bank and sharing the common threads from those doing it best. By best, I mean they are happy, fulfilled and living their best life—and doing it within their personal budget. 

For those who want the summary version, then here are the 3 most common traits that my happiest clients have when it comes to their spending:

1. They have a budget and allocate spending to things they value.
2. They are clear on what matters most to them and brings them joy.
3. They view money as a tool to do things that make them happy, not the end game.

For the extended version, read on.

So what can we learn from these to level up our psychology of spending game?

1 – Have a budget and allocate money to things that matter to you.

We all make dozens of spending transactions per week, so it makes sense to try and make these feel better. The best way to do this is to have a budget and deliberately set aside funds (regularly) to the things that make you happiest.  

Still trying to figure out if they are? A good question to ask yourself is, what have you spent money on in the last year that made you happy? What did the purchase do or give you? Write them down and be sure to allocate budget for these going forward.

As financial planners, we often face resistance to household budgeting, and I think this is because people associate this with stopping them from spending. But it isn’t about spending less (although sometimes this is needed); it is about being strategic about how you spend your money.

While the process may not always give you the answer you want initially, it does set you up for success so that you can allocate money to the things that bring you joy. If that isn’t enough to convince you then have a read of the ANZ Financial Wellbeing survey, which showed that knowing your numbers is linked to higher financial wellbeing.

An idea to bring this to life and perhaps make it a little more appealing.

How about flipping spending on its head and treating some of these expenses as “investments”?

• Invest in experiences and making memories
• Invest in your surroundings
• Invest in your physical and mental health
• Invest in connecting with your family and friends
• Invest in learning new skills or knowledge

2 – Get clear on what you value and what matters to your happiness most.

Spending in line with your values, what really matters to you and brings you joy, often dictates whether you feel you are living your best life. 

If you’re constantly spending on things you don’t really care about or don’t align with your values, it can leave you feeling like your money is slipping through your fingers. This is best summed up as not getting “value for money”!

What are you thinking?

If it immediately comes to mind, then great, but if not, then you are not alone. If you aren’t quite sure where to start, then maybe give the three questions exercise a try. George Kinder, the father of life planning, has become well-known for his “3 Questions” which are designed to get you thinking about what you value most in life. See below.

Question 1: Design Your Life

I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. 

The question is, how would you live your life? What would you do with the money? Would you change anything? Let yourself go. Don’t hold back your dreams. Describe a life that is complete, that is richly yours.

Question 2: You have less time 

This time, you visit your doctor who tells you that you have five to ten years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. 

What will you do in the time you have remaining to live? Will you change your life, and how will you do it?

Question 3: Today’s the day

This time, your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. 

Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done? 

3 – View money as a tool and not the end game.

When people view money as an end goal, they may prioritise earning and accumulating wealth above other things that are more important to them, such as relationships and experiences. This can lead to a feeling of emptiness or dissatisfaction, even if they have a lot of wealth in monetary terms. On the other hand, when people view money as a tool, they are more likely to prioritise things that genuinely matter to them and find fulfilment in those things.

Our life is short, and it’s not a dress rehearsal, so we want to quickly work out what brings us joy and then ensure we have the financial resources available to live that kind of life. 

Summary

To sum it up, the psychology of spending is complex and different for everyone. However, understanding how these psychological factors influence your attitudes and behaviours around spending can lead to greater happiness and a sense of fulfilment in your personal finances.

My advice?

Plan your finances in a way where you can confidently spend up on (invest in) the things that bring you joy and save on the things that don’t. Remember, you can’t take it with you.

Thanks for reading and I’d love to hear about how you approach managing the psychology of spending. You can send me an email here.