Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website and newsletters. He wrote "New Frugal You," a weekly Q&A column about frugal living, for CreditCards.comAsk a question
Dear New Frugal You
This probably sounds stupid, but I just don't know where my money goes. I make a reasonable salary and I don't think that I do a lot of shopping (OK, I do buy too many shoes!). So where does the money go? I've tried keeping track of all my expenses for a month, but nothing seems wrong with what I'm doing? Can you help? -- Mercedes
Good question! Sometimes it's really hard to understand our finances. The standard budget planning process starts just as you did it -- by carefully tracking spending for a munth. But turning that pile of information into something real and useful is the harder trick.
Often a struggle such as yours is not caused by the data itself, but by our lack of understanding it -- not so much on the financial level, but on an emotional level.
Any attempt to understand our spending patterns requires a bit of introspection. There can be emotional triggers to many of our spending decisions and without understanding them, that pile of information will stay just that. So let's try to consider what motivates us to make each purchase.
That will require you to go through the expenses you tracked. Consider each purchase. Use the list of emotional spending triggers below and see whether any of these symptoms seem to ring true.
- Protecting our image. We care what others think of us, and we make purchases so that others can see that you own those things. Designer clothes, Rolex watches and McMansions are good examples.
- Spending up to our income level. You may find that you spend money just because you can. A raise or unexpected income could be the trigger. The tell is not what you buy, but the fact that you always spend money as soon as it's available.
- The emotional high of spending. Many of us get an emotional kick out of spending. We buy because it "feels right" and then question the purchase when we come down from our high.
- The need to feel powerful. Being able to make decisions and back them up demonstrates power. That can feel good. Expecially when others react and acknowledge our power. If you're buying to demonstrate your power, you'll tend to buy "high end" products and services -- ooking to get something better than the typical consumer.
- The need for immediate gratification. We live in a "now" world. Instant Internet, instant food and instant credit. So when we see something that promises to satisfy one of our needs, we want it now. When all purchases were made with cash, scratching this itch was harder. Credit cards have made instant gratification much easier.
- The desire to protect our standard of living. Unless you're intentionally trying to simplify your life, you'll assume that any expenses incurred protecting that lifestyle are necessary. But changes in income, age and family status may suggest a different, more-modest standard of living. Purchases made just "because I've always done that" are a telltale sign.
- The need to overcome past problems. If you were materially deprived early in life, it's natural to want to avoid repeating those times. You might get a candy bar every work break to make up for the ones you didn't have as a child. Or you might only buy new cars because your parents could only afford old beaters.
- Convince ourselves of self-worth. Some people need to spend money on themselves in an effort to bolster their self-esteem. Often these are items that are self-centered (think manicures, fancy jewelry, personal convenience or care items). One way to identify these purchases is that they're often justified by a "I deserved it" claim.
When reviewing your past monthly purchases, notice if any of these triggers fit into your spending patterns.
The purchases may only be the symptom, with the underlying psychology being the cause. Unless you deal with the root cause, it's unlikely that you'll ever control your spending.
Don't be afraid to confront those causes. Often, once you know they exist, it's easy to overcome them. In any case, it's a battle that's worth fighting.
See related: How to get your spending under control, Take responsibility for overspending
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