Psychology of Money: How We Secretly Want People to Make Us Buy Things
"I wish someone would give me a couple thousand dollars and tell me I had to spend it on X." Ever feel like that? Yeah, me too. (See also: It's All Your Money)
I say that even though it goes against my most fundamental principle of financial management — which is that you figure out what you most want and then arrange your life so that you get those things. To wish for money that somebody would make me spend on something else? That seems very wrong.
I first became aware of this phenomenon when I was a kid, and my dad said something like this. He was talking about living-room furniture. But whether it's furniture or something else, I think everybody sometimes feels this way.
Spending Goals, in Theory and Practice
In theory, I disagree. In theory, I say: If you want nice furniture, go ahead and budget for nice furniture. Make a plan, save your money, and then (when you're ready) go ahead and buy some nice furniture.
In practice, of course, when you allocate enough money to cover your needs, and then you line up your wants... Well, there are some that you get right away, some that take a little while, and some that take a long while.
It's for those last items — the ones that take a long while — that sometimes this feeling kicks in. It's not all of them. It tends not to be the really expensive ones. I've never heard anyone say, "I wish someone would give me $50 million and tell me I had to spend it on a private jet." This feeling kicks in for the things that aren't so speculative. It's for the wants that are entirely affordable, if only they were just a bit higher in priority, but you can see will always — at least until you're rich — be behind a couple of other, higher-priority wants.
The Problem: Transient Wants
Although it may seem contrary, I think this feeling — the desire for someone else to take control of your finances and tell you how to spend a big chunk of money — supports my theory. It happens because not all wants are fixed. Some wants are transient.
I call my theory the "one big lump" theory of your money, in contrast to the "bunch of little lumps" of money pre-allocated to specific goals. I say all of your money should pre-allocated to satisfying all your goals. (See also: The "One Big Lump" Theory of Your Money)
When you do that, you're in a position to optimally manage your money. You can use retirement accounts and college savings for their tax savings. You can choose your investments based on the time-horizons of the various wants in your plan.
That's harder when you start pre-allocating money for this or that want — and it becomes impossible when you start letting transient wants make a hash of your plan.
It's those transient wants that make you wish someone else would direct your spending. When you look at your shabby furniture and wish you had something a little more fancy — and then look at your budget and see that it's going to be years before you get to buy new living room furniture. That's when you wish for someone to make you re-prioritize that item. And that, I think, is a good enough reason to go back to basics. (See also: Plan for Your Wants)
You don't have to make a plan and stick to it. It is perfectly fine to adjust your plan as your desires change. If a transient want rears its head and says, "Forget about the next six things you were planning to buy and buy me instead," it's perfectly fine to plug the new shiny thing in your plan right near the top.
Maybe it won't stay there. Maybe a night's sleep and a bit of cogitation will make you realize that its old spot, six slots down down in your plan, was the right place.
Maybe it will. Maybe the new shiny thing is what you should have had at the top all along.
These cases though — the cases where you find yourself wishing someone would take charge and make you buy something — are much more likely to be in the former category. Because the whole reason you feel that way is that you're in the thrall of a transient want. It won't last. Pretty soon your true values will come to the fore, and you'll end up back on your old plan (or one a lot like it).
And if they don't — if it turns out that this new plan really is in closer alignment with your true values — that's okay too. Because it's your plan.
In my dad's case, he did eventually get new living room furniture, but not until after I'd gone off to college.
How do you prioritize your wants? Do you have a plan for them or do you satisfy them as they appear?
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