Want to Feel Good Spending Money in a Down Economy? Get Your Act Together Says Ramit Sethi!
Assuming you have any disposable income, you probably feel guilty (if not terrified) to spend it.
But guilt (let alone terror) is a counterproductive money management strategy argues Ramit Sethi, author of I Will Teach You to Be Rich.
The problem is that once we overcome guilt or fear, we tend to spend my reflex – any shinny object we see, we’ll buy it without thinking and then comes the guilt (I just bought that?!).
The trick to feeling good about spending money, especially in a down economy, is to practice what Sethi calls “Conscious Spending.” It’s as simple as it is hard. In short, you have to actually “think” about what you’re about to buy and consider what economists called the “opportunity costs.” Opportunity costs mean that when you choose to do one thing, you prevent yourself from doing something else. For example, if you’re in college, you could chose to go to party or study, but you can’t do both. The cost associated with not partying and there’s the obvious cost of not studying for tomorrow’s exam. Typically people chose to do the task with the higher opportunity costs, e.g., you’re friends may be disappointed that you’re coming out but that cost is far less than the cost of failing the exam so you grit your teeth and stay in a study.
Same with money. You can’t buy it all. You have to choose. Sethi doesn’t’ say you have to know the intellectually ins and outs of the concept of “opportunity costs” to chose wisely (but it helps). Instead he argues for simple deliberate thought before you whip out your credit card.
Sethi suggest asking yourself these questions:
- Why do I want to buy this and do I have a good reason? A good reason would be an emergency need or whether the purchase is in line with your long term financial goals. For example, if your long term financial goals are to get out of debt & save money for an emergency fund, have you first put aside money for your emergency fund and do you have enough disposable cash on hand to make this purchase without going into debt?
- What else do I need right now, that I could buy instead, or what larger ticket item do I need in the future that I could put this purchase amount towards?
- Think of other ways you could get what you want rather than buying the exact item you’re considering. For example, could you get it cheaper on ebay? Is there a less expensive substitute?
In the end, by simply being conscious of every significant purchase you make, especially light of your larger financial goals, you’ll not only feel better about your spending — you’ll also become smarter!