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| Tuesday, May 20, 2008 |
| If we're on our way to a recession then, why do we keep spending? |
CNN wonders Why you just can't seem to save enough In short, I got caught up in a kind of consumer mob. It's no secret that our spending habits are driven in part by the crowd we're in. But there's more going on here than envy and status seeking. Most of us don't like doing math, and even fewer enjoy keeping a budget. When deciding whether a big expense is reasonable or not, we often take mental shortcuts. One of the easiest is to look at what people we know are doing.
That's trouble because we're almost certain to draw the wrong conclusions, says Ronald Wilcox of the University of Virginia business school. His new book, "Whatever Happened to Thrift? ", is a surprisingly witty guide to a gloomy subject: the complete inability of the world's richest nation to save.
A big part of the problem, Wilcox says, is that our shortcut-loving brains trick us. "We tend to remember extraordinary consumption more than mundane consumption," he notes. Wilcox says this is an example of what research psychologist Thomas Gilovich calls a one-sided event.
There's little reason to notice that most of your neighbors drive Accords. It's a good car, but who daydreams about owning one? When a single family on your block buys a Lexus, however, it suddenly feels as though everybody has one.
Our friends play tricks on us too. "We tell people about it when we go out to eat at a nice restaurant," says Wilcox. "We don't convey the same information when we eat mac and cheese at home." As a result, you likely have a skewed view of your friends' standard of living. Learning to focus just on your lifestyle requirements and not feeling like you need what others have is hard. To break myself of the envy which can lead to overspending - I find I must go a bit negative. Yes, the neighbors new car looks like so much fun to drive - but the gas mileage must be terrible and their insurance rate just skyrocketed. Or yes, my co-workers new shoes look sharp, but they must pinch her toes... Not that I am not happy that others have nice new things - I am happy for them. I just can't allow myself to get too happy otherwise I might find myself spending when I should be saving. How do you deal with retail envy? |
| posted by Boston Gal @ 6:52 PM *
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| 10 Comments: |
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I block it out. I don't look at what others buy or how they spend to be my guide. I focus on being an older person and having an easier life because if you run out of money at 83, there aren't a lot of options.
I've never bought a new car (buy certified pre owned for a fraction of the new price with low mileage AND a warranty), I max my 401k, I max my IRA and I continue to put extra money in my emergency fund (beyond 6 months of expenses) because the economy has me worried. You'd be amazed at what name brand items you can find at the Dollar Store or Aldi's (I don't know if Aldi's are everywhere but they're a good deal on items normally found in grocery stores).
Bottom line is it's easy to live large now, but it really takes forethought, restraint and sacrifice to ensure your golden years are actually golden. Do you really need a new cell phone every year, or a new flat screen for every room, or every cable channel with all the movie channels too??!!
The secret is to keep your regular monthly expenses as low as possible. Cancel what you don't NEED like HBO, XM radio, gym membership you never use, etc., and divert that cash into savings or investments.
Hang in there, we can all do it if we focus on what's really important.
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I work from home so I don't see a lot of personal spending until I go on a business trip. I prefer to watch how quickly my balances/investments are growing and that makes up for not having the latest, greatest, newest Coach handbag, Wii or digital camera.
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Thanks guys for not spending you helping our economy big time.
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I don't have retail envy....I love dressing in jeans and sweat pants most of the time. I never really cared for the latest and greatest tech toys. I do money on experiences such as retreats, meditation clinics, art supplies, and ingredients for baking/cooking.
I try to buy a few things every season to update my look and donate the items that I am not using.
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I remind myself that just because they bought it, doesn't mean they can afford it! I think too many people assume that everyone else is doing fine financially but themselves. So NOT the case! It's the people you don't notice buying things that are probably doing fine. Like another poster, I also work from home most of the time so it helps me from having to buy too big of a work wardrobe.
On the flip side though, we did buy some things that we want. Only because we want them though, not because someone else has them. Sure, I want to have enough money to retire, but I also don't want to not enjoy my 30 years until I get there! Who knows how long I'll live!
It's a balance and I think with patience and smart decision making most people can have a little bit of both.
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Accords are expensive too! My boyfriend and I have been living in the Boston area (now in Arlington) for 5 years since college, and buying a car seems more enticing every year. As more and more of our friends get better paying jobs and buy cars, we're becoming more aware of the constraints that public transportation and buses place on us. Even Zipcar forces you to be back to a specific place in a set amount of time. But, everytime I sit down and do the math I see that holding off on buying a car would be the difference between living comfortably within my means / on target for my savings goals and just squeaking by. I know that a carless existence isn't a viable option for everyone -- I'm lucky to live and work close to the mbta -- but for me it's another example of a way that a lifestyle decision saves much more money than a brand choice ever could.
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"How do you deal with retail envy?"
Having complete financial freedom by age 45 is worth more to me than any car or fancy house.
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For the longest time, my friends were all obnoxiously rich (family money) and retail envy definitely affected my spending. It wasn't so much that I coveted their stuff, it was that one of the things they liked doing best was going shopping, and when I actually do get to the stores, I do tend to buy.
They I moved away and now I avoid falling in the same trap by not having any friends (haha just kidding), but I have moved to a different class of friends - many who are from middle class families, with student loans, moderate incomes and families of their own.
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I go a little negative sometimes. For example, I dont like Lexus, so I wouldn't be considering buying one or trully understand why poeple want one. Also, some things look expensive but its amazing how cheap they are. There are some smart shoppers out there. So I try to think about that and talk to people with some respect because I could get a really good tip about buying things for less money.
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I deal with retail envy by thinking about how if I bought the same thing, it would cut into my personal goals, which mean way more to me than keeping up with folks.
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I block it out. I don't look at what others buy or how they spend to be my guide. I focus on being an older person and having an easier life because if you run out of money at 83, there aren't a lot of options.
I've never bought a new car (buy certified pre owned for a fraction of the new price with low mileage AND a warranty), I max my 401k, I max my IRA and I continue to put extra money in my emergency fund (beyond 6 months of expenses) because the economy has me worried. You'd be amazed at what name brand items you can find at the Dollar Store or Aldi's (I don't know if Aldi's are everywhere but they're a good deal on items normally found in grocery stores).
Bottom line is it's easy to live large now, but it really takes forethought, restraint and sacrifice to ensure your golden years are actually golden. Do you really need a new cell phone every year, or a new flat screen for every room, or every cable channel with all the movie channels too??!!
The secret is to keep your regular monthly expenses as low as possible. Cancel what you don't NEED like HBO, XM radio, gym membership you never use, etc., and divert that cash into savings or investments.
Hang in there, we can all do it if we focus on what's really important.