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I LIKE TO THINK I’M rational in the way I spend my dollars, and I suspect most readers do, too.
We are, of course, deluding ourselves.
Spending is never simply about buying what we want or need. Instead, behind every dollar that leaves—or doesn’t leave—our wallet is a complex mental dance that reflects how we feel that day, the influence of others, how we want to be perceived, and our own financial history. We might declare that we’re using our money to buy happiness. But the truth is far more complicated.
Part Three of Six
To make matters worse, it can be hard to tease out why we’re behaving the way we are. How exactly are others influencing us? What precisely are we trying to signal to family and friends with the way we use our dollars? Why were we disciplined yesterday but spending impulsively today? Which of our past financial experiences is driving our behavior?
Want to be a little more sensible in how you deploy your dollars? Here are just some of the things that are likely driving your behavior:
Needs. Folks will declare that they need certain items. But our true needs—basic nutrition, shelter, medical help when sick, transport to our place of work—are pretty modest and, if we were inclined to skimp, would likely devour a small percentage of our income.
Wants. Because our “needs” are rarely just that, it’s often hard to separate them from our “wants.” A Caribbean vacation is clearly a want. But what about the imported parmesan that we sprinkle on our salad? It would be hard to argue that it’s merely a cheese that delivers part of our daily protein needs.
Mood. Why do folks spend more freely when they’re on vacation, or splurge when they’ve had a rough day at the office, or treat themselves when they feel they’ve behaved well? Clearly, our mood affects our willingness to spend.
I’m especially intrigued by the idea of a “willpower budget,” perhaps because I see it in my own behavior. If it’s been a taxing day and my willpower is at a low ebb, I’m much more inclined to eat less healthily for dinner and perhaps have that second glass of wine.
Others. Whether it’s the items we buy, the places we vacation or the investments we purchase, we’re often influenced by others, whether we know it or not. We might be responding to a casual comment from neighbors or spurred on by the latest corporate advertising blitz. The danger: We’re nudged into spending money in ways we later regret or that don’t reflect our desires and priorities.
Signaling. Even as we get nudged on our spending, we’re also hoping to influence others. Whether it’s the second-hand car that says we’re frugal or the carefully cultivated garden that says we prize beauty and order, we’re constantly trying to tell the world who we are and what we value. And, no, we don’t necessarily have to spend to get our message across. For instance, simply alluding to our portfolio’s size or our home’s value can boost our standing in the eyes of others.
History. Even as we look to the future, we’re all shaped by the past. My parents and grandparents were all careful spenders, whether out of necessity or because they viewed extravagance with distaste.
This was reflected in the family stories that got told. My paternal grandfather would talk about how he was all but starved by the aunt who raised him. My mother often recounts how the great family fortune was frittered away by the prior generation. My father would regale others with his mischievous penny-pinching, such as how he’d use the facilities at Virginia’s Homestead Resort while staying at a nearby motel.
Security. One of money’s most important roles is to deliver a comforting sense of financial resilience. That, of course, stems from the dollars we opt not to spend. How much do we need to set aside to feel safe? The answer will vary for each of us.
If we’re constantly in danger of getting laid off, it would be rational to keep a fat emergency fund. What if there’s scant risk we’ll lose our job, but we have visceral childhood memories of our parents struggling to find work? A fat emergency fund might not be a financial necessity for us—but it could still be crucial to our peace of mind.
Future self. We use our dollars not just to buy a sense of short-term financial security, but also to give us confidence about the decades ahead. How concerned are we about our future self, and hence how much are we willing to sacrifice today so we can have a more financially comfortable future? This is a puzzling one, with a minority of folks making ample provision for their later years, while most folks put aside surprisingly little, even as they frequently lament their lack of retirement savings.
Legacy. We save money not just for ourselves, but also for future generations—and this isn’t just something the wealthy do. How many retirees view their home’s value as untouchable, because they want at least that money to go to their kids? It’s a sentiment I’ve heard countless times over the years.
Giving. We give not just to family, but also to others, including charitable organizations and our place of worship. I’d never want to impugn the motive of those who give generously. Still, it’s clear that giving can bring as big a smile to the giver as the recipient. Why does generosity make us happy? As with all uses of money, there’s no single answer—and instead, for each of us, the challenge is to understand what drives our own behavior.
Check out the two earlier articles in this six-part series: Money Grows up and Taking Center Stage.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on X @ClementsMoney and on Facebook, and check out his earlier articles.
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When I was in college a very long time ago, I was taught traditional economics which assumed we were all logical rational beings looking to maximize our economic utility. I bought it, hook, line, and sinker. How could I have been so dumb?
My relationship with money is still a work-in-progress but is much better than it once was thanks to Jonathan.
My wife and I met for brunch on Saturday with the couple we are going to Hawaii with later this month. As we reviewed our upcoming plans, we coincidentally (before I had read Jonathan’s post) got around to discussing our money foibles. Perhaps my most bizarre: Every morning I wash down my morning meds with a glass of Low Sodium V8 juice, and after discovering that I could subscribe to a six-bottle shipment from Amazon for $0.80/bottle less than I can get it at the cheapest grocery store in my area, I jumped at it! Given that I go through a bottle a week, this saves me around $42/year, about half of what I spent on brunch yesterday when I picked up the tab. In all, as of the market close on Friday, the amount I “save” on V8 annually is less than 0.0025% of our liquid net worth.
As I’m on the other side of 50, with my wife and I closing in on retirement, I have the perspective that a robust before and after tax portfolio brings. I have Jonathan and everyone here to partly thank for that.
it wasn’t easy. Like some others, I grew up in a hardscrabble existence. We had no money for anything. What has stayed with me is the stress of a job loss that would spell doom in the form of being evicted and starting at yet another new school.
After college, I had a Masters degree, but $36K in student loans and no financial savvy at that point. The good news was I was a tech guy entering the job market at the beginning of the 90s tech boom. I also had a subscription to the WSJ and the ‘Getting Going’ column filled with Jonathan’s practical writing. The loans would soon be retired.
Budgeting , saving and investing came through trial and error, but we got there. The things that have stayed with me were the financial stress from my early teen years – experiencing not having any money and not knowing where the next job is coming for your family is incredibly stressful. The other guiding principal that stayed with me is around personal expenditure – I don’t mind spending money that has been budgeted to be spent, but I want something for my money – don’t waste it, get what you paid for.
The rest of my principals came from Jonathan – understanding the value of index funds, the ‘tipping point’ that happens from regular investing and understanding that an ‘average working person’ can become wealthy/comfortable via regular budgeting, saving and investing. In other words, quit hoping to win the lottery – there’s no magic to it. Believe it or not, sometimes people need to actually be told this.
Thank you for the impact you’ve had on my life and my kids’ lives Jonathan!
Jonathan, you covered a lot in your very interesting article, underscoring the fact that human beings can demonstrate strange and illogical behavior when it comes to spending money..
With regard to signaling, I could never understand why people find it necessary to flaunt their wealth and property. I think it’s often aimed at demonstrating superiority for some.
People should want to refrain from this behavior if for no other reason than it can have dangerous consequences —and it’s a little tacky.
We handle the vacation splurging by only using funds set aside during the year for that purpose.
We just arrived in Florida for a month. Now all we spend/charge comes from the vacation fund. No impact on ongoing expenses.
Sign on my desk. Falling in love with less is a very lofty goal. Stop buying the unnecessary. Toss half your stuff, learn contentedness. Reduce half again. List four essential things in your life, do these first, stop doing the non-essential. Clear distractions, focus on each moment. Let go of attachment to doing, having more. Fall in love with less.
I’ve finally realised – in my 60s – that I’ve been deluding myself all these years when I think the economies I make subsidise my splurges. I bagged my Xmas puddings for 2025 & 2026 in Fortnum’s yesterday – they were clearing out the last of their 2024 festive stock & the puddings were reduced to just £2 each. Result!
Not quite sure that that saving will do much to offset our upcoming trip to Malta though… 😏
Lot of good points here.. i grew up poor, divorced mother raining 3 kids on welfare in a housing project. Whenever my mother worked she couldn’t make enough to support us, and there was no health care. Now I’m retired with plenty of money, but I still can’t get myself to overspend. It is ingrained in me. For example, cream or milk at grocery stores is sometimes close to $5. I go to BJ’s and Costco to get it for half that price. Yet I gave my 4 kids down payments for their homes. I will pay for quality but not overpay for basic commodities. Not sure if this is rational or not.
It seems reasonable to me. The little things do add up so as long as it isn’t “costing” you mental health to go to Costco’s (I enjoy shopping and it is fun to have the cashier do a double take when they announce the price) then I think it is a good thing to save the $2.50 to be able to spend it on something you find more valuable.
That makes sense. We just bought a nice piece of art for our place. It wasn’t cheap but it’s lovely and goes perfectly in the space we bought it for. But I also won’t let a $10 monthly Uber credit on my Amex go to waste. I don’t like leaving money on the table when a little effort will allow me to recoup it.
History is certainly a big influence on our spending habits, but not only family history. From a young age, I was fascinated by the story of wealthy young Italian man, born more than 800 years ago, Francesco Bernadone by name. He lived a wild life as a spendthrift and carouser, but ended up in prison for a few years. He came out a changed man, possibly PTSD. Nevertheless, he decided he wanted nothing more to do with his family’s wealth and was determined to live in poverty with a few carefully chosen friends. You know the rest of the story: He became known for his gentle charm that touched creatures from wolves to sultans. He’s known to history as Francis of Assisi. Though I’m certainly no saint, his story has influenced me to live more simply than I need to. But that doesn’t mean that I never indulge myself either. For example, I’m not price shopping for the two tours I just booked. I liked the itineraries so I signed up. One of them involves camels 😉.
Great article, Jonathan. As to “History” and how we might follow a family pattern when it comes to spending, there can also be a contrarian tendency.
For example, I’m inherently frugal and growing up our kids no doubt at times felt a bit deprived, as compared to their peers, because of that. Now, as successful adults, all four of them spend much more freely than I ever did!
Jonathan, I have been very blessed throughout my life. But I didn’t believe I had a lot of advantages. I did go to college and as result of several things, had a successful career. However, I found out later in life in my mother’s last few years how I was able to go to college without a lot of stress because I knew I didn’t make enough in the summers to pay for it–I was told not to worry about money (but I did anyway). However, the last visit her aunt/uncle made to us before they passed on provided my mom with a paper bag full of $1, 2 & 5 bills–they were adults during the depression and saved a lot but had no children. I was about 5 years old when this occurred but I had no idea about it until I was in my 50s. This act formed the main basis for my (and my sister’s) college education. You can bet I learned from that and established 529 plans for all my grandchildren shortly after they were born. I learned the legacy aspect of your article without having to do research…it was ingrained. We remain impressed with your efforts in your difficult situation and will read all your articles as long as you’re able to provide us your wisdom.
One memory from my childhood is mixing orange juice from those little cans of frozen concentrate. I am sure that my parents thought they were splurging because they never had orange juice of any kind when they grew up on the farm. But what I remember is the funny metallic taste of the stuff. When I got old enough to be somewhere to get the real stuff that didn’t come from a little can, I swore to myself that when I could afford it, I would never drink that frozen stuff again. And, now that I am old and well funded, I don’t drink it at all because it isn’t as healthy as just eating the orange.
Just as you reached the Promised Land the medical community bursts your bubble.
Frozen orange juice is a mystery to me. I grew up on it as well, but I married a Florida girl, who does condescend to drink the not-fresh boxed juice, so I got used to that and now the frozen concentrate is gross to me.
I know some products have changed their recipes (or been bred – “red delicious” apples are different than the apples I grew up with – they have a longer shelf life but worse taste) so I’ve wondered if my tastes have changed or the juice…
Sagacious as usual Jonathan. Spending has been part of the recent pre-retirement talks between my wife and me. We’ve discussed withdrawal strategies and safe rates, contrasted with the spending level we think will bring the most happiness. Your list touches all the major points of our conversation.
There is an compulsion/illness that affects spending; hoarding. Some of the questions on this test (14,15, and 18) address that: https://www.psychologytoday.com/us/tests/health/hoarding-test
Whether rational or not, I’m struck by how my little changed my spending, giving, and saving habits have been over the last five plus decades. Indeed, they are integral to who I am and to my sense of self. Overall, I am glad of that — like steering a true course in this ever changing world.
Thanks Jonathan. I find the impact of history fascinating. I know folks who are frugal because of their family history, and those who rebelled against their frugal parents and became spendthrifts. I’ve also seen the other side of this dynamic. People are interesting creatures. And you can see wide variations within siblings.
Yep. My dad was awful with money, family finances were always tight, and my parents eventually declared bankruptcy. My husband and I spent our 20s (we married at 23) mostly in grad school and with very little money. All of that has made me extremely cautious, and I recognize that my fears of running out of money are more conditioned than rational.
Whoa Jonathan. I draw the line at your insulting my Reggie. That’s what I call Reggiano parmasean. In 2017 we did a foodie tour in the Parma region of Italy. We visited a parmasean producer and once you’ve tasted the real thing, all others are like plastic imitations. We discovered it is the same when we went to a Balsamic vinegar vineyard (Hint Trader Joe’s Balsamic is the real thing). Olive oil however has to be Greek. Ariston which is displayed in big canisters at many retailers is the real thing as well (my brother a trained gourmet chef used this in his restaurant). I remember a piece on 60 Minutes years ago that reported on how poor the quality of olive oil in stores is. How they “water down” EVOO with lower quality oils. Good Eatin’ to all.
The book Extra Virginity by Tom Mueller goes in depth on the olive oils from tasting to outright fraud. Great read.
I order my oils and balsamics from a small business in Utah because a foodie blogger I like recommended them, and I make a lot of salad dressings from scratch. I don’t think I could ever go back to grocery store EVOO.
I rarely use anything but balsamic vinegar and olive oil for dressing my salad. Non processed food.
I now feel compelled to try Reggiano.
Try Reggiano and you’ll never eat any other kind. It’s alternates between salty and sweet with just a little sharpness on the palate. It’s also fabulous with a glass of Montepulciano D’abruzzo 🍷
Try Corto oil, fresh & delicious (& not Greek!)
Jonathan, all very true reasons why we spend (or not) but how do we change our ways? Once our needs are satisfied our WANTS take over as a very powerful pull. Those friends who seem to “control” their wants better are sometimes viewed as CHEAP….They could afford to take that extravagant vacation but they don’t! The perception that we have of how others view us or how we view others is a very strong factor in our spending patterns. Some people don’t care what others think of them and some of us care too much. Very complex forces at work here.
People obviously do change their spending pattern over time, but I think it’s hard to consciously do so, just as it’s hard to change our pattern when eating, exercising, interacting with others, and so on. I spend far differently from the way I did five years ago, but life events (aging, the pandemic, illness) have nudged me in that direction, rather than conscious choice.
My first wife’s spending evolved over the years. I believe depression caused her wants to overwhelm her needs while married. During the first several years following divorce, want spending caused severe financial strain for her. During her final 25 years the reality of her situation, along with much guidance from our daughters, helped her to discern between wants and needs, enabling better choices.
Dan – something similar with me. My first wife started out with a budget-oriented, saving mentality. At some point it changed to spend, spend, spend. After the divorce it took several years to put my personal (and single) finances in order.
As one of the over 60 crowd (as of April!) the clock is ticking in my head for encouraging our international travel. Besides starting to fret about the viability of our two lives, the immediate question is how long can I continue to handle 10-hour plus flights & my ankles safely walk cobblestones, demanding stairs, mountain paths, etc.
Other than travel and some eating out, I feel no temptation to spend money. Clothes and other fad nonsense hold no allure. I am a tough person to buy a present for, as I do not need or want anything–although a small box of dark chocolate Fannie May buttercreams is still enjoyable.😀
My financial hard wiring came from my childhood experiences. I remember money being a frequent argument with my parents. Thus I set a course to save and have enough. Now after the marital trappings of 35 years and closing my uncles’ estates, I am over acquiring more. I do love our home and furnishings, but am agonizing over the stone cold fact that in 30 years life will likely be a fraction of our comfortable experience today. No more five-bedroom house with a beautiful vista; more likely a one bedroom in an assisted living facility with folks snoozing in wheelchairs.
And that is why I book the trips.
My husband and I are turning 65 this year and have been prioritizing international travel, especially post-COVID, for exactly the reason you describe. We leave for South America next Thursday!
That is very exciting, good for you! In my previous pre-children life I heavily travelled the Asia Pacific area, thankfully on my former employer’s dime. Now my husband and I mainly focus on the European Union countries. We must explore Central America & South America soon…Costa Rica & Puerto Rico have been it for me. My husband has had numerous business trips to Brazil. Our oldest has visited Equador & Panama, he really wants to see Patagonia.
Thus Chile and Argentina would likely be top of my list.
What is your destination?