How to Spend and Save In Today’s Economy

Crazy money, stupid money

Have you ever run into a grocery store to pick up milk and bread and end up spending a small fortune on stuff you didn’t need? Do you spend more with credit cards than you do with cash? Have you ever ridden along with a friend who wanted to buy something at a mall or big box store and buy something even though you promised yourself you would not? Do you make good money but have little to show for it? Are you still promising yourself to save more and start a retirement plan?

Welcome to the human race. Saving money is hard work and humans are not hardwired to work well with money. That’s why money makes you crazy.

Surprise—you are not very good with money

Three things make it difficult, if not impossible, for you save. They are your biology, your beliefs, and your culture (BBC). Together they conspire to empty your checking account and prevent you from saving. 

Here’s the problem. Your brain evolved over time to keep you alive and pass on your genes. Everything else is a distraction. This simply means that the behavior that kept your ancestors alive might kill you at the mall.

You have an emotional feeling brain and a rational thinking brain. Your feeling brain is on autopilot. You don’t have to remember to breath or tell your heart to beat. The feeling brain is reactive, emotional, quick, and likes to spend. Why? Because it feels so good when you spend money. In fact, about 99% of your buying decisions are made by your feeling brain —without your knowledge or “approval.”

Your thinking brain is rational, single tasked, specialized, slow, and easily over powered by the feeling brain. You like stories more than numbers. You can rationalize any buying decision. Your memory is not as good as you think. And you aren’t very good at predictions. You thought you were in control.

So, it’s easy to spend money now on stuff that makes you feel good. Delayed gratification (saving) isn’t very exciting or sexy and doesn’t make you feel the same way. Therefore, you have to work at saving.

It’s all about you and your money

Your money belief system also influences your spending and saving. What you believe about money—good or bad—was set in your brain by the time you were about ten years old. Great . . .

Do you have “money issues” today that make it difficult for you to save? It’s probably because something happened when you were a kid that makes you feel and act the way you do with money today. What was that even? What kind of relationship did your family have with money?

If you spend a great deal more than you save—significant debt, lots of stuff, and compulsive spending–you might need some help. Get some.

Regardless, you need to identify and deal with your money beliefs. They help define your relationship with your money.

The rules have changed

Face it, you live in a consumption culture. Americans not only like to spend money, we are expected to spend money. Our economy thrives on people like you who spend. In moderation this is a good thing.

Here’s the good news, you have more spending choices than any time in recorded history. You can now shop and spend 24/7. Most people live a short drive from millions of square feet of shopping experience. Add in the internet and you have some serious spending opportunities. The bad news, lots of choices and easy access to shopping make it very difficult to save.

To make things worse, the rules of money have changes. And no one had the courtesy to tell you. Here’s the problem. What worked with money just a few years ago does not work today—think real estate and working at the same job for 30 years.

How’s that “get a good education, so you can get a good job, so you can retire with a nice pension” program working out for you? Today’s economy is fast moving, global, and knowledge based. Your financial future is as good as the last customer you saw, the last budget you worked with, and the last technology you used. Today, everyone is self-employed. You might receive a paycheck, but you are self-employed.

Congratulations, you are now the boss. You are responsible and accountable for your economic success. It doesn’t matter what you do or where you work—you are in command.

As the owner of “You Inc.” you need a plan. Planning is a thinking brain activity. Assuming you are serious about your money, you have to engage your thinking brain. You have to put something on paper that addresses your spending and gets you saving some money.

I know you don’t like to make money plans—few people do. It’s the same for diets and exercise, but I digress. If everyone had a money plan, and actually followed it, life would be easier for everyone. You’d have less stress now and some real options later in life—better options than what color vest you want to wear while working at your local big box store.

Don’t be depressed. There is a solution. You can save money. You can control your spending. You can have a sound financial future.

You need a system—the “Money Behavior System.” It has five simple parts. If you use it, you will actually control your spending and save some money in the process..

1.    Your money values

First, what is important about money to you? What are the most important things in life to you? What gets you up in the morning to go to work? What do you value most?

I call these your “Money Values.” For most people their critical money values are long term, emotional, and will cause anxiety if they are not achieved. It doesn’t matter what they are as long as they are important to you. Is it a quality of life, a legacy, to give back, or something else you think is important?

If you are married or have a partner, I bet you have different money values. That’s okay. I’d expect them to be a bit different. The important thing is to decide what the critical money values are and commitment to them.

In most cases, it is going to take time and money to achieve your critical money values. I call this saving and investing for the future. This is not a new concept—although some people behave as if it were.

For most people this means that you have to give up something today in order to have what is most important to you in the future. If this were easy, everyone would have enough in savings. However, if your money values are truly important to you, this is not that difficult.

2.    Your money temperament

How do your money values look? Will they get you up in the morning for the next few years? Now pull out your checkbook statement and your calendar. Let’s see if your money temperament (how you think and feel about money) supports your money values.

Be honest, does the way you currently spend your time, and money support your money values? It doesn’t matter to me how you spend your money, but I’ve found that when I look at a checkbook I can figure out what a person is passionate about. And it might not be their money values.

It’s important not to judge; however, if your checkbook says cars, electronics, clothes, music, eating out, and other stuff you might have a problem. Something will have to give. In most cases, it will be your future critical values. Sorry.

Are you a spender or saver money temperament? When you walk into the mall does everyone know your name? Do you have a kitchen that you’ve never used? Do the wheels and sound system on your car cost more than the car?

It’s okay to be a spender–many people are. You just need a money strategy to keep your spending under control.

3.    Your money knowledge

You need to know one more thing about yourself before you develop your money strategy. You need to know what you know about money–your money knowledge.

What do you know about money? Where do you get your money information? Is that information accurate, timely, unbiased, and suited to you? Do you know the difference between a bond and a stock? Do you read and understand your bank statement? How about all the legal disclaimers about money you get in the mail? Do you really know as much as you think you do?

In our society we assume that people know about money. I know from experience that this is not true. We don’t spend a lot of time teaching personal finance in our schools.

Regardless, you will be held accountable for your spending decisions. Remember, a dollar spent today is a dollar that is not available for something in the future. And you might need the money.

Unfortunately, there isn’t much of a “do-over” with money. Once money is spent it’s gone. So you have to choose carefully—the key word is “you.” Think through your important spending decisions. Ask questions. Consider the impact on your money values. What will happen if you do not spend the money and save it? It’s always up to you.

4.    Your money strategy

We’re almost done. By now you know something about your money values, money temperament and money knowledge. The next step is formulating your money strategy.

Your money strategy is in simple general terms how you plan to achieve your money values. Think of this as the 10,000 foot view of your saving plan. It needs to be a general timeline and plan of action—no details yet.

Your strategy should be in your own words (make it fit on a 3X5 card). It is a statement of the grand design for your life. You must be very clear and focused on what you want to accomplish. What does success look and feel like? What must you overcome in order to be successful? Remember, the only constant is change. You must be flexible and open to change–life happens.

5.    Your money action

The last step is money action. This is where the rubber meets the road. Now is the time to research and select your money products and services. This is detailed stuff. If you aren’t wired to deal with money details—delegate. Find a pro (someone with a license) to help you.

If you truly want to achieve your most critical money values you have to start–now. Don’t wait. This is too important. Your biggest road block is you. Don’t procrastinate. Every day you wait costs you money. This is money you will never get back.

Finally, having a sound saving and investing plan is all about managing your behavior. Picking and managing financial stuff has little to do with your ultimate money success. The person trying to sell you a financial product might not tell you this. However, it’s true. Don’t fall into the trap of chasing performance or last year’s fad—real estate, dotcoms, tech stocks, beanie babies, gold or silver plated coins, or anything sold by an infomercial as an investment.

By the way, lottery tickets are not investments, and they are a horrible saving plan. Spend the buck on a candy bar. At least it tastes good.

Financial success is between the ears. It’s all about you. If you want something bad enough you’ll find a way to save. So I ask you, what’s important about money to you?

Now I get it

To wrap this all up . . .

  • You are human.
  • Humans aren’t wired to work well with money.
  • It’s our biology
  • It’s our money beliefs
  • It’s our culture
  • Use the “Money Behavior System”
  • Know your money values
  • Know your money temperament
  • Know your money knowledge
  • Have a money strategy based on behavior not products
  • Put your money action plan in motion and monitor your progress

Saving money is only as difficult as you make it—but you need to do it. The alternatives are ugly.

First know yourself—your money behavior. Then select your products. Good luck.

Money Made Personal – Ted

“Money Makes Me Crazy!” is now available for the Kindle. If you liked the article, you’ll love the book.