Despite our better judgments, our spending and saving often boils down to an emotional decision.
For example, you just got a raise, making it the perfect opportunity to sock away a little extra in your savings account. Then, you find out that your friends have all booked a last-minute island getaway — one that’s a little out of your budget.
Your brain is saying, “Save!” but your heart wants to join them. You want catch up with good friends, eat good food, and bask in the sun. You don’t want to miss out!
This scenario rings true more often than not. In fact, psychologists have shown that it’s especially difficult to connect giving in to short-term wants with the pain we intellectually know we’ll suffer in the future when the money we need isn’t there.
If you find you often experience “fear of missing out,” you could be FOMOing yourself out of the life you most want.
The Red Flags
Here are three signs FOMO is in charge and your spending plan is not:
- You often regret spending the day after, or when the credit card bill shows up.
That’s right, good old-fashioned guilt kicks in. We think if we emotionally punish ourselves that will justify the original irresponsible act.
Did you have a few too many cosmos at the bar and pay for your entire work team’s bar tab? You probably woke up with a spending hangover!
- You find yourself rationalizing spending.
Your friends invite you out for a night on the town, and you want to go! Or, there’s a sale at Nordstrom. Or, your iPad screen cracks and you need a new one — right now.
Or, fake it ‘til you make it right? Yeah, you should definitely lease that BMW.
- You’re always making deals with yourself that you then break.
You promise yourself you’ll stop overspending next month.
But guess what? Next month is never this month.
Instead, you take money out of your retirement accounts to pay for things you’re afraid to miss, and promise yourself you’ll pay it back.
You buy things like trips and cars, only to realize that those consumption items soon lose their luster or disappear altogether, leaving you holding the bag. In this case, the “bag” is an abused retirement account that you’ve promised yourself you’ll repay, but there’s no flexibility in your budget to actually repay the loan from savings.
What to Do
- Know your weaknesses. If you know what you tend to spend on, you can budget for that expense. Open a savings account especially for new clothes, nights out, or vacations.
- Identify with your future self. Take 20 minutes and imagine yourself 20 or 30 years in the future. The imagery is important here. Get a magazine or get on the Internet and find an image of a woman you might look like at that age, and imagine that is you. Try to imagine the thoughts she’s having about her financial life.
If you never stop overspending, your future self will almost certainly be regretful and ashamed (believe me, I talk to these folks all the time). There is nothing you can do to change the past, so these regrets are often carried for years.
If your future self has a nice cushion of savings, imagine the freedom you’ll have to travel and spend time with loved ones, knowing that you were prudent and responsible in your early years. Imagine being in the position where you know you can retire comfortably.
If you’re aware that you’re only emotionally connected to the present and not the future, that’s the first step. Taking the steps to emotionally connect to the future — even if it’s a fear of messing your future up — can be your key to rightsizing your lifestyle.
This article was originally published on Hilary’s DailyWorth Connect Platform for Experts September 21, 2015