We all want the best of life, but at what cost?

It is so easy to spend money now. Not only are there a lot more options, but the method of payment is effortless. Tap ‘n go, pay by cell phone, we can even purchase from the comfort of our bed in our PJ’s.

The hedonic treadmill explained

We feel good for a short amount of time after the purchase, until that feeling of happiness loses its shine, and we return back to our original emotional state. Once we return to our original state we then look for a new product that will satisfy our next craving for more. Again, only feeling better for a short while until the next craving comes along.

Think about when we buy a new car. For the first couple of months we are so careful not to scratch it, cleaning it every week. Then after a couple of months we don’t seem to care as much. Or we are hungry and buy a block of chocolate. The first few pieces are really good, but once we hit a point of satisfaction, each subsequent bite becomes less and less satisfying than the ones before. It is not long-lasting fulfillment.

The simple curve below taken from one of my favourite finance books, Your money or your life.

It shows that spending money at first is necessary to meet our basic needs such as food and shelter, and this brings us increased fulfillment. Then we make extra purchases that increase our comfort levels such as TV’s, cars, also increasing our fulfillment. Then we need to buy bigger TV’s, tinted windows for the car and a bigger house, and that is where our fulfillment starts to plateau and diminish with each extra dollar spent. If we are spending at this level it means we are buying more than we need. Before the peak level of fulfillment, we are getting more happiness from each dollar spent. After the peak, we are getting less happiness from each dollar spent. Wasted money.

Enough IS enough

This constant search for the next rush is often referred to as the hedonic treadmill. Once on board it is hard to get off as it builds up speed. We become so busy having to pay and maintain for all this stuff, we don’t have any time or money for friends, family or volunteering activities. The things that really matter to us. You don’t see people on their death beds wishing they bought more stuff. Most regrets are to do with the non-monetary things in life, such as not spending enough time with the family, or not fulfilling a certain dream.

We have so much ‘stuff’ now that we are buying much bigger houses to house all of it. Family sizes aren’t increasing yet house sizes are. In the 1960s, the average house size was 128 square metres. More recently, the average is over 210 square metres. Average household sizes in the same period have fallen from 3.6 to 2.6 people. We are buying bigger houses with fewer people living in them. Heck, many of us can’t even fit our cars in our garages due to the amount of stuff in storage.

we are spending too much

We are buying more house than ever before, and we are spending more than ever. Our kids have more toys, we have more clothes, more TV’s, more cars, more phones, we eat more food. We are spending more income. According to statistics NZ, average household spending per person has gone up from $17,344 in 1992 to $28,490 in 2016, inflation adjusted. This is a 39% increase over and above inflation.

our debt is too high

Household debt in 1991 was just under 60% of income. By 2017, household debt is over 160% of income. This makes sense. We are spending much more, so we need to go into debt to service the spending. This is because our spending is going up at a rate much faster than our income and inflation.

our savings are too low

In 1988, the average household savings rate in New Zealand was 7.4% of income. Fast forward to 2015 and it was – 0.5%. If we are spending, we are not saving. How come 30 years ago people could live without cell phones, 2 cars, massive TV’s and still be happy?

Why do we spend on things we don’t need?

• It makes us feel good. The chemicals in our brain react and we feel a sense of satisfaction.
  

• We get to show off our purchase.
  

• We are victims of very clever marketing tactics. Marketers often sell us products as a way out or an escape. An escape sounds fantastic to pretty much anyone, but even more so to those who are most stressed and feeling trapped. The ironic thing is, as you find out later, that more spending is the very thing that ‘traps’ us.
  

• We are filling a void in our lives. We just want to feel happy, less stress, accepted and other feelings.
  

• It is a habit that is hard to break.
  

• We are materialistic and want the newest, hottest product. Look at the queues of people whenever there is a new version of the Apple I phone released.
  

• We are trying to keep up with the Jones’s. As they buy more, we buy more. Sometimes the Jones’s are actually rich, but a lot of the time they are fake rich. This means everyone is feeling the pressure when they spend more as we try and keep up.
  

• We can’t resist temptation: this goes as far back as Adam and Eve. Whether you believe this or not, the idea of temptation was there.
  

• We don’t have time, so we spend on convenience.
  

• It is easy. We are bombarded with information every day.
  

• We are looking for something better.

When we buy in excess, we then need to buy even more. It has a flow on effect. For example, if you decide you need a new kitchen, you upgrade the kitchen. It looks great. But now the lounge suite, TV, dining room and bathroom look outdated and out of place. Pretty soon you find yourself upgrading more than you intended.

The number of self storage facilities are also growing. To house all our stuff that we have bought but don’t have room for. But we can’t get rid of them because we have got too emotionally attached to our things. We have a tendency to overvalue things that we own, but undervalue things that others’ own. Our behaviours are not always rational, but instead heavily influenced by emotions and cognitive blind spots.

What effect does excess spending have on us?

• We end up overworked, busy and poor. We find ourselves so busy with work so that we can continue to stay on top of our spending and debt obligations. By spending more than we need to, we end up tied to a job we may not like for 40 years so that we can maintain our luxurious lifestyle.
  

• We end up working more years than we would like, not getting to enjoy an extended and fruitful retirement.
  

• We spend less time with friends, family and loved ones. We have so many ‘toys’ for all ages in our houses now that although family may be under the same roof, we are not actually connecting with each other. Anyone with kids will also know that even they get bored with new toys, which goes to show that long term children’s happiness doesn’t come from stuff. More so from bonds, friendships and made-up games.
  

• When we are overworking to feed our obsession for more stuff it is bad for our health. So bad has this become in recent years that the Japanese have made up a new word for death from overwork – ‘Karoshi’
  

• The effect of overspending can also be seen at the community level. We have less and less schools, libraries, pools and parking. Yet more and more shops and malls. The sense of community appears to be disappearing, in favour of things. Since when did we start to value things over people?

Spending habits are hard to break

After the peak point of the happiness curve at the beginning of the article, all other spending is only filling some other void in our lives. Unhappy, stressed, acceptance, fantasy, anger, escape. I feel it is summarised beautifully in this Donella Meadows quote:

Solutions to breaking the spending habit

• Building up a support network of people that help us, not harm us. It is hard to break the overspending habit when all your friends are spenders.
  

• Downsize. Your house, your car.
  

• Saying no sometimes.
  

• Leave your EFTPOS card/cash at home. This works really well for me due to all the temptations.
  

• Stop comparing yourself to others.
  

• Set goals and stick to them. Start thinking of your future self.
  

• Pay for things in cash. It has been proven that we find it much harder to part with our money when paying in cash.
  

• Simplify your life so you don’t need as much.
  

• Delay the decision to make the purchase for 1 week. If you still want to make the purchase after a week then go ahead. If not, then you have saved yourself some money.
  

• Don’t look as not spending as what you are missing out on. Instead look at what you are gaining. Goes back to placing more emphasis on your future self.
  

• Get off Facebook and social media. People only post their best moments or best things online. We are only getting snippets of the best parts of people’s lives, not the full story. Stop comparing yourself to false ideals.
  

• Find your intrinsic motivation. We keep looking outside ourselves for satisfactions that can only come from within. Find a powerful motivation for why you want to save – spend more time with family or retire early etc. This should be strong enough to stop you from detouring.
  

• Be grateful for what you already have. This will stop the longing for more. Our standard of living today is so much higher than even 30 years ago. Laptops, cell phones, WIFI, modern cars. The average lifestyle today is overflowing with luxuries that we don’t even realise it. We take for granted just how incredible and excessive our stuff is.
  

• Seek experiences not things. Do you want a life of stuff or the stuff of life?

Final Thoughts

People’s lives are getting busier and busier that we now to have make bookings weeks’ in advance just to see our friends. It becomes exhausting having so many things on the go and this is what is called the stress of excess. It has become such an epidemic that there has been a new movement formed called ‘minimalism’ that focuses on owning very little. This is going from one extreme to another, and I recommend being somewhere in the middle. Balance in life is key.

A lot of people will argue that they want to live life in the now and don’t want to worry about saving or money. It is a solid argument – after all, everyone should be living in the now. But as shown in the happiness curve, how much extra happiness is being derived from the extra spending and is the happiness long lasting? Is the fulfillment received from the short-term pleasure more than the long-term fulfillment you will get from not spending and meeting your future goals? If you are spending money on experiences, such as travel and events, then chances are you will be much happier than someone spending money on things.

If you can afford to both spend and save then great. If not, then you need to make tough choices. Future goals or present fulfillment. The key is to find the right mix between future and present fulfillment. Only you can answer that based on your values, goals and priorities in life.

Genuine, long lasting happiness comes from within and our intrinsic goals, not from things. As succinctly summarised in the Donella Meadows quote, buying more things than we need won’t make us happier. In fact, it will leave us feeling empty and searching for more. This is why someone who is not spending on a lot of material things can still live as much a fulfilling life in the present than someone who is spending up large.

As we increase our reliance on things we become shackled with our hands tied to gold plated handcuffs. It is time we break the shackles and become free. Free to do what matters most to us. Free to do what we want. Free to be healthy and live for experiences, not things.

Most people can only reach these levels of freedom through money and that is why how we decide to use each and every dollar is so important. Money is a vehicle that can buy us freedom and time, which in turn will buy us experiences and long-term happiness. If we don’t have money, then we don’t get to be the ones to decide what to do with our time or when to be free. Our employers decide. Our bank decides.

If you need a financial plan to help determine your ‘enough’ point, then get in touch and we may be able to help.

The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here

Comment below….what tactics do you use to delay spending? Do you have anything that you have to buy or can’t say no to?