Why Does Spending Make Us Feel Good?

By now, most of the readers of personal financial blogs have the basics of how to manage their financial affairs better.  Save more than you earn, automatically set money aside for retirement or other investment goals, have an emergency fund, etc…  However, one of the areas that I am intrigued about that is little discussed is the whole issue of behavioral responses and finances.  In particular, I’m interested in the question, “Why does spending make us feel good?” Although I am not a compulsive shopper, I certainly do understand the urge to shop or spend money. Here are some of my armchair observations, and suggestions to cope:

–A Temporary Feeling of Empowerment — this is the main reason that I hear from people when they confront the issue. With so many other things seemingly out of control in their lives, spending (particularly on a big ticket item) gives a temporary surge of feelings of empowerment. Unfortunately, this also leads to large bills to be paid later.  To cope with this, it may help discussing other problems with someone, hiding the credit cards, and making a 24-hour wait rule. In other words, don’t allow yourself to buy anything of a significant $ value the day you want it, impose a mandatory waiting pattern.

–Wanting to keep up or show off to those around you — Keeping up with the neighbors or co-workers can be one of the most costly feats around. My guess is that most of them have too much debt and not enough in savings.  To step away from this, try to cultivate activities that don’t require spending.  With more and more people attached to the simplicity movement, it might also be good to seek out additional social groups.

–Lack of a long-term perspective — can you think 20 years into the future. The lack of understanding of the importance of compound interest, cumulative savings and investment returns hinders the appreciation of having long-term goals.  Always try financial planning with both big vision goals (freedom to pursue whatever you want) as well as day-to-day implementation goals, like setting aside 10% of your paycheck into a special account.  The long-term goals will help to keep the short-term actions in perspective.

shared at this week’s Carnival of Personal Finance