Money seems like it has everything to do with logic and little to do with feelings — but our emotions can have a pretty big impact on how we deal with our finances. Gratitude, for example, can affect spending (and even investing) in a big way. Here's a first-hand account of how it changed my own financial habits for the better.
Research On Gratitude And Money
A group of researchers studied how gratitude affects our money decisions in Gratitude: A Tool for Reducing Economic Impatience. They asked participants to write about an experience that generated one of three emotional conditions: happiness, gratitude or "neutral". Subjects were then presented with money decisions that involved them getting a little bit of money now, or a greater amount in the future. The better choice was pretty obvious: delayed gratification literally paid off.
To sum it up simply, the results showed that the "gratitude" subjects were much more willing to wait for the larger amount.
This is all well and good in chart form, but how does it work in real life?
I always considered myself pretty grateful for what I have, even when it hasn't been much. But over the past couple of years, I've realised that, while I might be passively grateful, I've still been more focused on what I don't have. And that focus has had impacted my finances in a few ways, primarily with spending.
The Problem With Goals
Goals are great. I've always been a big fan of them, and I've had financial goals since I was little. Growing up poor, it was always my goal to, basically, not be poor. After I graduated university, this general goal included a handful of specific ones:
- Find a salaried job
- Get out of debt
- Stay out of debt
- Save money
Focus On Lack
Most of those goals were driven by fear. I worried, constantly, that I wouldn't have enough.
Admittedly, that fear worked wonders to get out of debt. But after a while, fear kept me from enjoying the life I'd built for myself. I did find a salaried job. I'd saved for an emergency. Still, I hoarded my money and stayed in a constant state of worry over losing everything. This screwed up my finances in a few ways:
- I oversaved. I put too much money in my savings account on pay day, underestimated my expenses, and overdrafted.
- I didn't bother learning about investing because I was too scared of losing money.
- I never asked for a raise. I was scared my boss would yell at me.
Fear and finances is a whole other topic, though. The point is — I was so focused on my goals, I didn't think about the things I already had. I was too focused on the lack and the what-ifs.
Focus On The Future
Obsessing over goals isn't always a fear-driven thing. Sometimes, you just want more for yourself. As my finances progressed, and I learned to let go of some of my fears, I started focusing less on what I thought I needed and more on what I wanted.
And it was great to have aspirations. But we've written before about how it's actually better to focus on the process instead. To put it in corny terms, it's about the journey, not the destination.
You might say: sure, that mindset is great philosophically, but how does it affect your finances?
First, focusing on the process can actually make you more productive. You're dealing with the tangible present rather than the abstract future. This can make you a better problem solver. There's evidence that focusing on the present, rather than the future, also leads to better saving.
And it makes sense. When you're focused on the present, your financial decisions are more concrete. Here's an example: for years, I didn't invest or save for retirement. My future goals included finding a job that paid me a crap-ton of money. So I figured I'd worry about those things then. I put a lot of pressure on the future without considering the present — that I was losing out on the power of compound interest by not investing as soon as possible.
Because I chose the future over the present, I always chased the proverbial carrot. I wanted; I was a consumer. I wasn't unhappy, but I was dissatisfied. And subconsciously, I felt a bigger apartment or a better wardrobe could help feed some of that dissatisfaction. Really, that's how lifestyle inflation gets you. You watch TV renovation shows for 5 hours straight and think, "I want to buy a home someday. Let me browse Trulia. OK, I can't afford this. But I can afford a trip to IKEA!"
I've always been OK at keeping it under control, but I've still mindlessly bought a lot of crap I don't need because of that subtle focus on lack.
And really, there's nothing inherently wrong with buying crap you don't need. But for me, the key word was mindless. I didn't even consider my spending habits or what was manipulating them.
How I Shifted Focus
When I shifted focus from the future to the present and became more grateful for the things I have, a few things improved:
- I stopped impulsively buying junk.
- I had more money to save.
- I invested better.
- I felt financially secure (which, for me, is the point of saving in the first place).
- I became a more engaged (and therefore more valuable) worker.
But changing your mindset is a hell of a lot easier said than done. For a while, I tried, but nothing really changed. I kept a gratitude journal. I read about, and used, methods to stop impulsive spending. There were a few things that made all the difference though.
My Biggest Financial Fear Was Realised
I lost my job. This has always been one of my biggest financial fears, and it happened. I went through the typical stages of grief. Once I was done feeling bad, I realised a few things that sparked my gratitude in a major way:
- I spent years making a really fun job really miserable because I worried about it incessantly.
- I had an emergency fund. My fear-driven past had paid off and served its purpose. I wasn't nearly as stressed as I would have been without this.
- My job does not define me. I lost it, yet I still existed.
- My job loss didn't happen "for a reason". It happened because, simply, shit happens. When "shit happens" for me, I still have a roof over my head and food to eat. For a lot of people in this world, "shit happens" means misery and suffering.
I didn't have much control over this impetus, but there were other ways I shifted focus.
I Made Shorter-Term Goals
I read our own Thorin Kloskowski's piece about having a hierarchy of goals. I like the idea of having smaller, immediate goals that are influenced by our overall life goals. This takes something abstract and makes it actionable. It's a great way to link your future self with your present self. In personal finance, that's a big barrier to saving and investing — we tend to see our future self as a complete stranger.
So I applied Thorin's post to my own weekly task list. I started making short-term goals based on my larger ones. For example, I changed my goal from "Save $50,000 in 5-10 years" to "Save $5,000 this year." And I adjust the time frame and amount as necessary. I didn't realise it at the time, but I used the same method when I paid of my debt. It's just about setting smaller milestones.
Allowing myself to achieve something in the short-term makes me happy. It makes me thankful for my accomplishment. It makes me realise I'm already living my goals — I'm focused on the journey.
I Practised Conscious Consumption
Being a conscious consumer basically means being frugal. As Ramit Sethi puts it:
Frugality, quite simply, is about choosing the things you love enough to spend extravagantly on — and then cutting costs mercilessly on the things you don't love.
When you're deliberate about your spending, you're a lot more grateful for your money and the things you buy with it. Clothing is not something I love enough to spend extravagantly on, but travel is. Being aware of this helps me make better spending decisions.
There are all sorts of tips on how to practice being a more mindful consumer. How well they work depends on the person. For me, the "envelope method" consistently proves to help get me back on track when my spending goes crazy. If you're not familiar with it, it involves using cash, instead of a debit/credit card, to pay for various expenses. Working with something tangible helps me think more about what I'm buying.
There are still things in my life I wish were different. I still have plenty of goals I'm working on, financially and otherwise. In the meantime, being grateful for the present has really helped to improve my spending habits. And, more importantly, it's made me a more satisfied personal overall.