Of Dollars and Data | Nick Maggiulli | Dec 3, 2019

Psychological Tricks for Worry-Free Spending

I want to teach you how to spend money.  You may think that statement sounds ridiculous and say to yourself, “Nick, I don’t need help with spending money.  I’m an expert at that!”  But I’m not talking about how to spend money extravagantly.  I’m talking about how to use your hard-earned cash in a worry-free way.

There have been thousands of personal finance articles written on how to spend money.  Some of these articles emphasize frugality and reducing your expenses, while others focus on growing your income so you don’t have to worry about expenses at all.  But, the problem with many of these approaches is that they are based upon one thing—guilt.

Between Suzie Orman telling you that buying coffee is equivalent to “peeing away $1 million” and Gary Vaynerchuk asking you whether you are working hard enough, mainstream financial advice is built upon sowing doubt around your decision-making.  Should you buy that car?  How about those fancy clothes?  What about a daily latte?  Guilt.  Guilt.  Guilt.

This kind of advice forces you to constantly second guess yourself and creates anxiety around spending money.  And having more money doesn’t necessarily solve this problem either.  A 2017 survey by Spectrem Group found that 20% of investors worth between $5 million and $25 million were concerned about having enough money to make it through retirement.

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But this is no way to live your life.  Yes, money is important, but it shouldn’t alarm you anytime you see a price tag.  If you have ever debated whether you could afford something even when you had sufficient funds, then the problem isn’t you, but the framework that you are using to think about your spending.

What you need is a new way of thinking about how to spend money so that you can make financial decisions without worry.  To do this I recommend two different tips that, when combined, will allow you to spend your money 100% guilt-free.

The 2x Rule

The first tip is what I call “The 2x Rule.”  The 2x Rule works like this:  Anytime I want to splurge on something, I have to take the same amount of money and invest it as well.  So if I wanted to buy a $400 pair of dress shoes, I would also have to buy $400 worth of equities.  This makes me re-evaluate how much I really want something because if I am not willing to save 2x for it, then I don’t buy it.

I like this rule because it removes the psychological guilt associated with binge purchases.  Since I know that my splurging will be accompanied by an equal-sized investment in income-producing assets, I never worry about whether I am spending too much.

And you don’t have to invest the money for The 2x Rule to work effectively either.  For example, you could donate the other half to a charity and have the same guilt-free effect.  Every “extravagant” dollar you spend on yourself could be matched with a “charity” dollar that goes to a worthy cause.  Not only does this allow you to help others, but you won’t feel bad when you spoil yourself.

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No matter how you decide to use The 2x Rule, this is one simple tip that can help free you from the prison of purchase guilt.

Maximizing Happiness or Fulfillment?

The second tip I use to spend my money worry-free is to focus on maximizing my long-term fulfillment.  Note that I said “fulfillment” and not happiness.  The difference is important.  For example, running a marathon is probably a fulfilling experience though it may not necessarily be a happy one.  The exertion and effort required to complete a marathon does not typically create a sense of moment-to-moment happiness, but it can create a deep sense of accomplishment and fulfillment once the event is over.

This is not to say that happiness doesn’t matter.  Of course it does.  The authors of Happy Money: The Science of Happier Spending found that spending money in the following ways was most likely to increase your overall happiness:

• Buying experiences
• Treating yourself (on occasion)
• Buying extra time
• Paying upfront (i.e. all-inclusive vacations)
• Spending on others

However, even these great tips are no panacea.  You can buy the absolute best experiences and allow yourself all the free time in the world, but this does not guarantee that you will be fulfilled.  So what can increase fulfillment?

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This isn’t an easy question to answer, but the framework proposed by Daniel H. Pink in Drive for understanding human motivation is a great start.  In the book, Pink discusses how autonomy (being self directed), mastery (improving your skills), and purpose (connecting to something bigger than yourself) are the key components to human motivation and satisfaction.  These same categories are also useful filters for deciding how to spend your money.

For example, buying a daily latte may seem unnecessary, unless that latte allows you to perform at your best while at work.  In this instance, the daily latte is enhancing your occupational mastery and would be money well spent.  You can use the same logic to justify purchases that would increase your autonomy or sense of purpose as well.

Ultimately, your money should be used as a tool to create the life that you want.  That’s the point.  The suggestions in this article were merely meant to reduce your anxiety around money, not to tell you where to use it.  The hard part, therefore, isn’t spending your money, but figuring out what you truly want out of life.

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