LEVEL SEVEN

De-consumerize Your Brain

Moving is a great way to put a shopping problem into perspective.

A couple of years ago, my husband and I moved out of our one-bedroom, minimalist apartment. We only had a few pieces of furniture—a bed, a coffee table, a sofa—and barely anything on the walls.

“We can probably move everything in one trip,” I said, naively. On its website, U-Haul even suggested a standard fifteen-foot truck would do the job for our one-bedroom apartment. And they would know, right?

But three trips later, we were exhausted. And I was confused. How did we accumulate three trucks’ worth of junk? I thought about all those walks over the years, from the car to the apartment, carrying bags from Marshall’s, Target, Pier One, Urban Outfitters—the list goes on and on—slowly but surely filling up our 800-square-foot apartment. Consumerism, the inclination to purchase and use goods and services, is a sneaky habit. We crave it so much that we often don’t realize we’re in full-blown consumer mode until it’s too late. We live in a society of commodities, marketing, and advertising. It’s hard to walk down a busy street without being solicited at least a few times—come in for lunch, try our new hand moisturizer, would you like a sample? This isn’t to say spending money is inherently bad. Buying too much stuff can get you in trouble, yes, but at its core, money is just a tool, and it’s up to you to decide how to best use that tool. The key word, though, is decide. It’s easy to buy stuff mindlessly. In fact, our brains are wired to do it. We’re hunters and gatherers; shopping is our prey, and we gather it in our trendy, HGTV-inspired apartments. If any of this sounds familiar, it might be time to de-consumerize your mind, and the first step is understanding how your mind works to begin with.

PRO TALK: Tonya Rapley, Founder of MyFabFinance.com

BEAT YOUR OWN COGNITIVE BIASES

Our brains are wired in weird ways that often work against us. We veer from logic or reason in favor of decisions we think are best but are actually terrible for us. Psychology calls this cognitive bias. When you understand how your own biases work, it’s a lot easier to put an end to them (or at least keep them from destroying your finances).

The Sunk-Cost Fallacy

Ever been in a terrible relationship? You know you should’ve ended it months ago, but you’ve invested so much time into it already, and breaking up would mean all that time was a waste.

That’s the sunk-cost fallacy in a nutshell, and it can influence everything from relationships to career choices to money. Here’s another example. Maybe you go to Target to buy a phone case and they don’t have it, which is a bummer because you came all this way and fought for a parking spot. You refuse to leave the store empty-handed, so you shop until you find something else you can buy (not hard to do at Target). Who cares if it’s not what you came for? You drove all this way! You fought for a parking spot!

I’ve been in this situation more times than I care to admit, and once I realized there’s a name for this illogical habit, it was a lot easier to recognize. When it happens now, I can say, “Oh, I’m doing that sunk-cost fallacy thing,” and leave the store knowing that, even though I wasted a trip, at least I’m not wasting money.

How to Beat the Sunk-Cost Fallacy

Next time you find yourself thinking, “But I came all this way” or “But I spent all this time,” try this easy mind trick to snap back to reality.

Ask yourself how much more you’ll spend if you give in to the fallacy. How much more will you spend if you buy those headphones when you only came for the phone charger? In other words, stop and actually quantify the additional losses. This helps put your choice into perspective.

Buyer’s Stockholm Syndrome

You’ve heard of buyer’s remorse, which is the feeling of regret over an impulsive purchase. Typically, that regret is accompanied by denial. We try to convince ourselves we really needed those $100 headphones, even if it meant putting them on an overdue credit card. We’ve already bought them, so we rationalize, and this rationalization is a form of choice supportive bias, the tendency to ignore any views that don’t support a decision we’ve already made. In the consumer world, this whole song and dance is known as Buyer’s Stockholm Syndrome. We’re held captive by a poor spending decision, and, rather than face facts, we try to convince ourselves we’re happy with a poor choice.

You can probably think of a few times you’ve been there with your own spending, but this cognitive bias goes beyond shopping. It can be especially sneaky when it comes to complicated decisions. And financial decisions are often complicated.

Sometimes we use choice supportive bias with larger financial decisions, like investing. People are afraid of investing because they think it’s risky, like playing the lottery. There is some risk with any kind of investing, but proper, long-term investing is a pretty safe bet. Historically, the stock market has averaged a 6 to 7 percent return,²² and while it’s plummeted at certain points in time, it’s always come back up to gradually and steadily increase over the years. Investing is not risk-free, but it’s not the same as playing the lottery and expecting to win millions. This concept is not difficult to understand, but people are often afraid of learning new things, so they hold on to erroneous beliefs. This bias dovetails into the status quo bias, the tendency to favor decisions that don’t shake up your life too much. You get to keep doing what’s comfortable.

How to Beat the Status Quo Bias

The best way to combat choice supportive bias and status quo bias is to keep learning and keep an open mind, which is easy to say, but much harder to actually do. It’s hard to recognize these habits because they’re so ingrained we often don’t even realize they’re happening. However, sometimes when others point them out, the bias seems rather obvious. For example, check out the following common status quo biases and see if any of them ring true.

It might also help to talk about these habits with a trusted friend to hold yourself accountable. My mom has been my financial accountability partner for years. If I make an impulsive purchase that I try to rationalize, I call her and ask what she thinks, because I know she’s crazy frugal and she’ll give me her advice. She also gives me advice when I don’t ask, but that’s another story. Mom’s gotta mom.

Similarly, if you feel like you have to hide your purchase from your accountability partner (or anyone, for that matter), chances are you made the wrong decision and you know it. Your hesitancy is a trigger, and triggers can help you recognize your biases in action.

Anchoring Bias

You and your friends decide to try a new restaurant that opened in your neighborhood. Not knowing what to expect, you see a $20 deluxe cheeseburger on the menu and blurt out, “Twenty bucks for a cheeseburger? Who do I look like, Elon Musk?!”

You’ve never spent anywhere near that much on a burger, but then you notice a less fancy $14 cheeseburger on that same menu. Maybe it doesn’t come with guacamole and a fried egg, but it’s cheaper. Suddenly, spending $14 on a burger seems reasonable.

This is how the anchoring effect works, and advertisers have used it for ages to encourage consumers to spend more than they normally would. Anchoring is when our mind relies too heavily on the first piece of information we’re exposed to, and that piece of information serves as the basis for all decisions going forward. That overpriced $20 cheeseburger is the anchor, and anything less than that now seems affordable in comparison.

Anchoring can influence how much you spend, but it can affect how much you earn, too. Let’s say you’re interviewing for a brand-new job, and you’re prepared to accept it for a starting salary of $60,000. But you’ll ask for $65,000. During your third interview, your potential new employer throws out the first number: $40,000. You’re floored because it’s much less than you expected. You now feel there’s no way you can ask for $65,000 without being laughed out of the room, so you ask for $45,000 and they accept. You’re now starting your job at $20,000 less than you anticipated.

How to Beat the Anchoring Bias

Research is the best way to block the anchoring bias. Whether it’s a hamburger, a car, or your salary, when you know the fair market value of an item, it’s a lot easier to come up with a realistic number. For salary, sites like Glassdoor.com can help you research what other people in your industry earn for similar jobs. (You can also flip the script and use the anchoring bias in your favor, but you’ll get to that in Level Twelve, where you’ll learn how to negotiate.)

To kill the anchoring bias when you shop, ask yourself how much you’re willing to pay for something before you even look at the price tag (or the menu price). If you’re browsing a boutique and see a pair of shoes you like, ask yourself, What’s the most I’m willing to pay for this? This way, your purchase is anchored in your own choice, not someone else’s.

The Bandwagon Effect

From car payments to mortgage payments to credit card debt, people have a tendency to follow suit when it comes to money. Most people have no idea what they’re doing with their money, so they look at what everyone else is doing to gauge their own progress. It’s called the bandwagon effect.

The housing crisis is a perfect example of how the bandwagon effect can be problematic. For years, it was normal to rely on banks to tell you how much home you could afford. They approve you for a certain amount; you go shopping for a house in that price range. Eventually, banks took advantage of this with subprime mortgage loans. They offered ridiculous terms and huge loan amounts they knew people couldn’t afford to pay back just to get them to spend more. It should have been an obvious problem to avoid, but everyone jumped on board and bought houses that were out of their price range. No one questioned the bandwagon, and eventually, the bubble burst.

On the other hand, jumping on the bandwagon isn’t always the worst decision. Sometimes everyone in a group makes a solid decision, and following their example works out. For instance, in my first full-time job after college, my employer offered a 401(k) match: for every dollar I saved for retirement, they saved a little for me, too. It was an awesome perk, but I didn’t know that at the time. I signed up for it, but only because everyone else seemed to think it was a good idea. If everyone else makes sound decisions, jumping on the bandwagon works out. Still, it would’ve been smarter to do my own research and take advantage of the match for my own good, not just because everyone else was doing it.

How to Beat the Bandwagon Effect

Beating the bandwagon effect doesn’t mean doing the opposite of what everyone else does. It just means researching and making the best decision regardless of what everyone else does. Once again, the remedy goes back to knowledge and research. You’re taking the time to boost your financial literacy by reading this book, so you’re already on the right track.

Cognitive biases are like blind spots. If you drive into a lane without looking, there’s a chance you might not get hit, but you don’t want to take that chance because the outcome could be destructive. So when you spend, it helps to know how your brain works when it comes to spending.

EMOTIONAL SPENDING

Retail therapy can be a serious problem for people. A 2008 study published in Psychological Science found that people are actually willing to spend more money when they’re sad.²³ Researchers showed some subjects a sad movie clip and asked how they would feel in a similar situation, encouraging them to feel sad. Other subjects were shown a neutral documentary and asked to write about their daily activities. Researchers then asked both groups a simple question: how much would you spend on a water bottle? The group that had watched the sad movie was willing to spend almost four times as much as the control group.

Emotions can really mess up our spending, and nearly half of us admit to spending emotionally.²⁴ You’d think we’d buy luxuries like ice cream and fancy purses to make ourselves feel better, but we actually spend money on necessities, according to a study published in the Journal of Consumer Research.²⁵ The authors write:

Notice a theme here? It all goes back to feeling in control. The problem with spending emotionally to feel in control is that it can screw up your budget and make you feel out of control later. That can stress you out, which may lead to more emotional spending. It’s a nasty cycle, but there are a few ways to break out of it.

Pay with cash: Research shows that people who pay with cash tend to spend less than people who pay with plastic.²⁶ Cash is tangible, you can see there’s a limited supply of it, so it forces you to second-guess your emotions for a moment and think logically about your purchase.

Unlink your credit card information: It’s way too easy to spend money on “necessities” on Amazon when your credit card is linked to the site. You’re a click away from splurging. An easy fix: unlink your credit card info on websites and apps that make it easy to spend. This solution isn’t foolproof, but it adds one step between feeling sad and hitting the “Buy Now” button, and that extra step might be just what you need to resist temptation.

Create a splurge fund: It sounds counterproductive, but one of the best things I’ve ever done to control my desire to splurge is to create a splurge fund. Every month, I budget $10 for impulsive spending. This way, when I’m tempted to spend and I find it hard to resist using any other solution, I at least have a boundary. Are you giving yourself permission to give in to temptation? Kind of, but you’re also setting a limit for that temptation in case your willpower fails you.

WHAT ONE MAN’S PAJAMAS CAN TEACH US ABOUT DEBT

Denis Diderot was an eighteenth-century French philosopher who wrote an essay called “Regrets on Parting with My Old Dressing Gown.” In the essay, Diderot receives a beautiful new dressing gown as a gift. He loves this new dressing gown, but he soon realizes all of his other stuff sucks compared to this fancy gown. So he buys new things. Diderot writes²⁷:

He’s a little melodramatic, but Diderot makes an important point: this is how lifestyle inflation happens. The Diderot Effect is a social habit that’s based on two main ideas:

We love and become accustomed to our new, shiny objects so much that they become part of our identities. You’re no longer the guy who wears a T-shirt to bed. You’re the guy who wears a cashmere dressing gown. To accommodate this new identity, you buy new things that better support that identity.

My dressing gown was a rug. It was a simple, cute little jute rug I found on sale for $20. I wanted something to tie the room together, but when I brought it home, that $20 rug didn’t go with my pillows. So I bought new pillows. And then I bought new plants to go with the pillows. At that point, my room had a completely different style altogether, so I bought new chairs, too. Before you know it, my $20 purchase had spiraled into an entire new living room, hundreds of dollars later.

There’s nothing wrong with buying things you want, but the Diderot Effect is linked to mindless consumption because it involves buying something without thinking about all the other purchases it will trigger. If you want to stick to your budget and goals, learning to spend consciously, with a purpose, is a must.

To combat the Diderot Effect, consider the total cost of ownership of anything you buy. When you buy a car, for example, the total cost of ownership includes the cost of maintenance, gas, and insurance over time. Depending on how long you own it, your $14,000 Corolla now becomes a $20,000 Corolla. Savvy car buyers know this tip, but you can use it for just about any purchase. Buying a silk blouse? Don’t forget the cost of dry cleaning or the new pants you might want to go with the shirt. Buying a new phone? Don’t forget the cost of the car charger and new case you’ll probably want to keep it protected. You don’t have to come up with exact numbers; you just want to factor in all the additional costs when you make your decision. This way, not only will you make a more well-rounded decision, you also won’t be surprised when you end up spending 20 percent more than anticipated.

WHEN COUPONING BACKFIRES

Coupons don’t always save money. In fact, they can make you spend even more than you want to spend. A 2003 study from New York University researched the link between coupons and consumers’ grocery spending habits.²⁸ In one study, they presented subjects with different kinds of hand soaps, ranging in price. Half the participants were given a coupon and the other half were supposed to shop as normal. Researchers found that shoppers with coupons paid an average of $2.28 for soap, while those without a coupon only paid $2.07.

“Consumers are generally price-sensitive and prefer lower-priced products, other things being equal,” the study concluded. “But when coupons are available for expensive products, their likelihood of purchasing the expensive product increases.”

In other words, when given a coupon, people actually pay more than they would without one. Coupons make you feel like you’re saving money because they’re designed to make you feel that way, but in reality, you may actually be spending more. Couponing can give you the same rush you get when you buy stuff. Another study out of Claremont Graduate University found that coupons actually make us feel happier and more relaxed.²⁹

Of course, sometimes using a coupon does serve the simple, practical purpose to save you money: You were planning to buy a specific brand of toothpaste, and you happen to have a $1.00 coupon, so fine, you might as well use it. In general, though, coupons trick us into believing we’re making a smart financial decision when, in reality, we’re just shopping—which is why retailers print coupons to begin with.

This isn’t to say you should never use a coupon or get excited over an awesome deal. But in order to be truly in control of your money, you want to be aware of the subtle manipulations of the consumer world. So how do you increase your awareness and spend mindfully? Aside from recognizing your biases, there are a few general habits that can help you de-consumerize your brain.

MAKE SOME MINDFUL SPENDING RULES

Rules are a simple way to get your impulsive, mindless spending under control. When you create rules, you force yourself to think twice about your spending. Here are a few of my own spending rules that you can use, too:

The 10/10 Rule

You know you shouldn’t spend $500 on a new purse when you just found out your car needs $1,000 worth of repairs. That’s obvious, but there are times when you’re truly torn over a purchase. You find a pair of quality jeans that fit perfectly and they’re on sale for $30. It’s a great deal, and you know you’ll wear them all the time, but you’re not sure if you want to spend the money. So what do you do?

I established the 10/10 rule when I got tired of wavering over purchases like this. This way, I make the most of my budget and my time. Here’s how it works: I give myself ten minutes to waver over the purchase. After ten minutes, my time is up, and if the purchase is $10 or less, I buy it and stop wasting my time overthinking it. If it’s more than $10, I put it back on the shelf and save my money. In other words, I spend:

With the 10/10 rule, you give yourself enough time to think about a purchase, but not so much that you’re wasting your time. Your own numbers might vary, so feel free to adjust them according to your own budget. The point is to stop wasting your time on purchases that don’t matter and stop wasting money on stuff you don’t need. Feel free to steal this one.

The “Per Use” Rule^*

There are variations of this rule, but the idea is the same: calculate how much use you’ll get out of an item, then calculate the price per use. From there, give yourself a “per use” spending limit, like $1.

For example, let’s say you want to buy a $200 coat. You calculate that you’ll have it for five years and wear it about ninety days a year. That means you’ll wear it approximately 450 times. At $200, your “per use” cost is about $0.44 (200/450). Considering how often you’ll wear it, it’s not a bad deal. If you live in Palm Springs and wear a coat exactly three times a year, however, it might be a different story.

At the same time, it’s easy to use this rule as a justification for spending money. After all, just because you will use something a lot doesn’t necessarily mean you need it. This rule does, however, weed out those purchases that you definitely don’t need. It’s a good starting point when you’re wavering over a purchase.

The “Wait One Week” Rule

Waiting is one of the best and simplest ways to avoid an impulse purchase. It can also be the hardest. This rule is nothing new, but I first learned about it from a friend. Any time he wanted to buy something that cost more than $100, he forced himself to wait a week and research the item in question. You want to buy those $200 speakers? Force yourself to wait a week, do some research, then come back to it. This not only gives you time to learn more about the item, it also gives you time to consider whether you really want or need it.

Again, you can adjust the rule for your own spending. If something is more than $25, force yourself to wait 24 hours. If something is more than $200, force yourself to wait a month. Feeling in control is crucial when it comes to managing your money, and waiting helps to establish that control. Rather than punish yourself for spending or trying to avoid the temptation, this rule forces you to deal with your temptation and make a better, more empowering choice instead.

Save When You Splurge

Make it a rule to also put money into savings when you splurge.^* You can save a specific amount or just save the exact same amount as your splurge. This rule is a win-win. It makes you think twice about giving in to a spending temptation because it will be extra expensive. But if you do end up giving in, you’re still saving money.

START A GRATITUDE LIST

Most people think about gratitude all wrong. Generally, people tell you to be grateful when you’re upset about something. Car broke down? Just be grateful you have a car! Took a pay cut at work? Just be grateful you have a job! This is the “someone has it worse” approach to gratitude—just be grateful you’re not [insert terrible thing here].

Aside from making you feel worse, this approach doesn’t really solve anything. Instead of feeling grateful out of shame or guilt, you should feel grateful because there are some serious benefits to gratitude. Research suggests that it can make you feel more resilient.³⁰ In a TED Talk, psychologist Guy Winch suggested gratitude can make you feel more in control, motivated, and powerful.³¹ It’s all in how you think about it, though. When you approach gratitude in a positive way that makes you excited and thankful, not guilty, it’s a lot more effective. When you practice gratitude as a habit, a few interesting things happen:

Many of us are richer than we realize. To practice gratitude as a skill, start with a good old-fashioned gratitude list. If you want to make it less corny, I guess you could call it a “Life Is Pretty Good” list. The idea is the same: every day, think about three things you’re grateful for, then write them down. The act of writing this list by hand in an old-school journal forces you to engage more with the activity. Instead of a task, it becomes an experience, and a more tangible one that you can feel connected to, which makes you more mindful, and that’s what this is all about. Why not start now?

Life Is Pretty Good Because…

Go ahead, write your answers down. They don’t have to be complicated. My list looks something like this:

Life Is Pretty Good Because…

I can make a cup of peppermint tea whenever I want.

I get to visit my BFF in two months.

French fries exist.

VISUALIZE YOUR GOALS

If mindless consumerism is spending money on goods you don’t really need, the opposite of that would be spending money purposefully on stuff that actually matters to you. Once you know your mission, de-consumerizing your brain comes down to prioritizing that goal over consumption. One way to do this is through visualization.

When you keep your goal in front of you, you keep it front-of-mind, too. A sticky note on a credit card is a classic trick. Level Four covered this method briefly. Write down your goal on that note and slap it on your credit card, and next time you’re inclined to spend frivolously, you’ll be reminded of that goal. Again, online budgeting tool Mint.com uses a progress bar to track goals. Each month, as you come closer to reaching your goal, the progress bar grows. It’s not a game, exactly, but it is a way to see your goal realized.

And then there’s the “don’t break the chain” method, which originated on Lifehacker.³² You work toward a goal every day and mark off those days with a giant X. The idea is to motivate yourself by creating one long chain with these X’s. Once you visualize your progress in this way, you’re less likely to break the chain. Below I’ve created a template based on this method that you can use to visualize your own goal. You can use the template for paying off credit cards, saving, or just about any habit you want to stick with on a regular basis. If you’re working on these goals on a weekly or monthly basis instead of daily, that’s cool, too—make each square represent a week or a month.

Huzzah! By now, you should have some rules and systems to remind yourself to spend with a purpose. Mindful spending is tricky, but you’ve set yourself up to ace it. If you find yourself having trouble in this area moving forward, get back to basics and track your spending.

GET MONEY “DON’T BREAK THE CHAIN” TEMPLATE

Write down your goal: _________________________

In each square, write down the dates you plan to work on your goal. Write down exactly how much you plan to save or pay off on each date. Mark a big X over each day that you work on your goal. Don’t break the chain!