How mindfulness can help you get in control of your spending
Why do we spend money to feel good now, even if it’s obviously going to have negative consequences at some point, such as damaging financial stress.
And why do we seem to make better decisions if those decisions are planned and not impulsive?
The answer is complex, but just so you really get the ideas, first try to imagine yourself under a lot of stress. Maybe you are working and studying, and dealing with a worrying, ongoing health issue too – so you’re always flat-out busy, your mind feels ‘full’ and you have a sense of no end in sight.
Imagine how that stress feels in your body. It’s a difficult feeling, right?
Then without thinking, answer which of these options you’d pick:
- buying two pairs of the same fancy shoes you like because they are in the window at your local mall or ordering them for 25 per cent less but having to wait a month.
- selling your car today for $500 less than you could probably get because a buyer is ready with the cash and you want a weekend away or waiting for more money.
Many people probably favour the first option in each case because they want the ‘reward’ now.
Why? According to behavioural scientists, “present rewards are weighted more heavily than future ones. Once rewards are very distant in time, they cease to be valuable,” so says behavioraleconomics.com.
This was the finding of landmark research done in 2002 by Shane Frederick, George Loewenstein and Ted O’Donohue, and published in the Journal of Economic Literature.
Interestingly, when it’s not possible to be rewarded immediately, we will often wait longer to receive a greater reward. Research shows if given the choice between $100 in a year or $120 in 13 months, we are more likely to wait.
All this suggests when if we plan for the future, we are likely to make better decisions about money. But it depends what that future event is, and how far off it is.
If it’s a skiing holiday with friends in the Canadian Rockies next Christmas, we will probably start saving. But if it’s retirement at age 70 (as the Federal Government proposes from 2035), that feels somewhat less urgent, even though few would argue it’s more important than a skiing trip.
In a 2014 report on savings, the Reserve Bank of Australia showed “younger households place more weight on saving for large purchases and emergencies to smooth near-term consumption rather than saving for longer-term (retirement) consumption.”
“Some keys to managing decisions like these are to make those far-off outcomes feel closer,” Peter Sokol-Hessner, assistant professor in the department of psychology at University of Denver, The Huffington Post.
He suggested “to imagine how you’ll feel when you can use those retirement funds, how grateful you’ll be that your younger self sent this gift into the future.”
What has all this got to do with mindfulness?
Mindfulness is being fully aware of what’s happening in the present moment. When we can train our minds to be more aware of each moment – either through some kind of mindfulness practice like meditation, or just a deliberate change in mindset – we make better spending and saving decisions.
We can think about what we really need now, versus what we need in the future.
For instance, you may decide to do extra research before selling your car or home, looking more carefully at trends and brainstorming other ways to find ready cash.
A big benefit of becoming more mindful is it creates a buffer against the power of the external pressure to spend. Think about the hype involved around the release of the next stage of a sought-after apartment development: it’s in the interests of a real estate agent to get potential buyers into a feeding frenzy state with other potential buyers, so the stage sells out, the project can go up and the next stage goes into marketing overdrive.
“It’s not just real estate,” says Financial Mindfulness’s founder and CEO, Andrew Fleming.
“A lot of marketing works on the idea of scarcity and urgency, whether there’s only 100 in stock, or it’s a brand new order, or whatever. Think about new phones, new cars, something that is labelled ‘limited edition’.
“Marketing often works on us by getting us to make a decision before we’ve had a chance to think through all of the consequences.”
“Becoming more mindful will help you to buy things rather than be sold to. It’ll allow you to come from an understanding of your real needs, consider the consequences of your actions and respond by making decisions, rather than be manipulated by marketing.”