More than Just Numbers: On Cars, Cupcakes, and Eating Out

Recently I read a book called The Righteous Mind: Why Good People are Divided by Politics and Religion by Jonathan Haidt (pronounced height, not hate, though I am sad at the loss of irony). This guy is a moral psychologist—yes, that’s a real thing—and his book focuses on a sort of evolution of morality. Is morality innate? Developed? Culturally relevant? Most people would consider moral reasoning—that is, deciding what is right and wrong—as a logical thought process that helps us formulate an opinion on a certain issue, and then, in a sense, our “righteous anger” or other emotional state develops in response.

But according to Mr. Haidt, the opposite is actually what usually happens. That is, we have a gut reaction to a certain moral issue or event (for example, “This cupcake is so tasty…nom nom nom”), and we then use moral reasoning to justify our particular position (“It’s okay because it’s my birthday/my friend’s birthday/my friend’s friend’s birthday/I just had a bad day.”).  I bring this up not because I want to discuss the morality of cupcakes (I know, you’re disappointed!), but because this is how most of us make spending decisions.

To give you a more-finance-less-cupcake-related example, we recently purchased a new car. Prior to this car purchase, our only debt was our mortgage. I hadn’t had a car payment in over 8 years. But our Hyundai was, well…struggling. At around 210,000 miles, the alternator went out ($500 plus $80 for towing). Then the battery ($120). Then the connections to the battery (factory parts: $100, but we dubiously pieced it together for about $10). We were also looking at some expensive regular maintenance ($1000 to have the timing belt and water pump replaced, as well as a transmission flush). We paid $2000 for the car when it had 145,000 miles on it, so you see where I am going here…these repairs were more than the car was worth, and we didn’t want to sink more money into it.

You’ve probably heard the advice before: buy used, pay cash.  But since we just bought a house last year we didn’t exactly have $10000 in our back pocket. And what was the point of buying a cheap used car that would have problems similar to the one we were trying to get rid of? So we started looking for a new car. We found a good deal on one we liked, put down a little bit of money, and covered the rest with nearly free financing. We felt good about making such a smart choice on a fuel efficient car with good financing that would likely last more than 10 years, and gave ourselves a financial pat on the back.

This is all well and good, except that we have 2 other, completely paid for, perfectly functioning vehicles. Granted, they are both pick-up trucks, so not great for passengers or traveling. They are both approaching 200,000 miles, so they won’t last forever. But none of these reasons are a pressing need. We willingly put ourselves into debt simply because we wanted a new car. We made an emotional decision and then used our stunning logic to justify why it was the right choice.

This doesn’t mean I regret this choice—the car payment was budgeted and isn’t an undue burden (and at some point I want to do a post on why having a car payment isn’t exactly the worst thing ever). Essentially, our car payment buys peace of mind, which is a price we are willing (and able) to pay.  I only bring it up as an example of how much our emotions drive our financial decisions. You can have the most well-reasoned budget in the whole world, but it won’t help you if you don’t take the emotional side of your spending into “account” (see what I did there? J ).

***Don’t misunderstand me: emotions are not bad. You likely cannot—and should not—make financial decisions devoid of emotion. Studies have shown that using pure logic to make decisions can have dire consequences (the worst being that you cannot make a decision at all). Logic informs our decisions, but emotion helps us make up our minds.***

For example, I am already the sort of person that can spend 30 minutes picking out conditioner. When I recently found myself torn between two products that seemed essentially equal, I eventually chose the one with a cruelty-free logo. I used my emotions—how I feel about cruelty to animals—to guide my decision. Maybe you care more about a particular brand (loyalty), or the actual ingredients (no parabens), or the color of the bottle (oooh, I love orange!)—these are all decisions guided by your emotions.

Traditional financial advice tells you to focus on your needs vs. wants. This is true to some extent, as we all have the same basic needs: food, water, shelter. But at some point the line between needs and wants gets pretty darn fuzzy. Do I need a cell phone? A car? A pet? A computer? You can live without all of these things. But a cell phone provides a means of communication—human contact. A car gets us where we need to go. A pet provides companionship. A computer helps us keep our lives organized. None of these things are necessary for survival, but they all have VALUE in our lives—they have the potential to make our lives better. Exactly how valuable they are to us is a decision made by our emotions.

Wow this post is getting long. If you need to, go take a cupcake break. If not, then onward....

I don’t want to discount logic in this discussion. Logic tells us how much money we have available for spending, as well as the myriad of ways to possibly spend it. When we discard our logic, our emotions can get us into serious trouble. But after logic has been applied to our spending choices (as it should be), how we feel about something is often what makes the ultimate decision.

I am learning that the key to making good financial choices is not to take emotions out of the equation (which I have tried and failed at a dozen times). The key is to be aware of your emotions, and then use that knowledge to either

A)      trade one emotion for another

        OR

B)      use your stunning logic to meet the same emotional need in an alternative way.

Let's apply this principle to the biggest hole in our budget—eating out. We absolutely love eating out. But why? My emotions tell me that eating out provides a means of companionship—it is what we love to do with our friends. When my husband and I eat out together we leave the distractions of our life behind and can focus on the conversation at hand. Eating out is a way to relieve stress (“I’ve had such a long day—who wants pizza!?!?”). It’s super convenient. And, of course, it’s tasty! But my logic tells me that eating out is like having a sieve in my wallet. So how do I change this behavior?

Using principle A), I can find another emotion more powerful than the emotions previously elicited. So, for example, one of our goals is to max out contributions to our Roth IRA (if you don’t know what that is, that’s okay… we’ll get there). Building wealth in retirement accounts makes me feel secure, because I know that I won’t always work simply because I have to. Every dollar I spend eating out that isn’t budgeted is a dollar that I cannot contribute to the future. So when deciding whether or not to eat out, I can ask myself:  Is spending this money now worth possibly having to work longer when I’m 60? Sometimes the answer is yes, but more frequently the answer is no. I am using my feelings of security to trump the emotions elicited from convenience, companionship, or the pull of my taste buds.

Of course, in our busy lives, convenience and companionship are important. I don’t want to become a miser who has no friends and lives in a hole. So if I have maxed out my eating out budget, or if I just need to put that money somewhere else, I can employ principle B) and use my logic to meet these emotional needs without eating out. For example, cooking or preparing meals ahead of time for convenience. Inviting friends over for a bonfire and a potluck for companionship. Keeping a few comfort foods handy when I just need food to get over a stressful day (don’t judge). These are all cheaper than eating out, but I am still getting things that are important to me.

Most of us don’t really need a financial planner—we know where our money needs to go. Most of us need a financial therapist (surprisingly, also a real thing)—we need help getting our money where we want it to go, and we can't figure out (or don't want to figure out) why it is not getting there.  Well, I am neither a financial planner nor a financial therapist, but I can recap this very long post with this bit of advice: use your logic to inform your spending choices, but use your emotions to prioritize your spending.

 It won’t do you any good to logically decide that you need to cut back on cupcakes when the smell of chocolate is wafting into your nose. But you can use your emotional awareness to confront the cupcake: “Cupcake, you sure do look delicious. But, alas, that money is going toward my trip to the Wizarding World of Harry Potter. Too bad you won’t be able to go. Plus, I’ve got this handy stash of trail mix that isn’t quite like you, but at least it has chocolate. And you don’t have any almonds. Take that, cupcake!”

Tuck these thoughts into the forefront of your mind, because they will become important when we talk about our next topic (and really, all of our topics). Now go have a cupcake. If you've made it this far, you probably need one!

 

 

 

My Meducation: Why I am Starting This Blog

Quick question: where did you learn to manage your money? If you’re like me, the most formal education you ever got in personal finance was a brief stint in high school economics where you played monopoly (not sure what the lesson was there) and learned how to balance your checkbook (which I haven’t done in about 10 years). Did that prepare me for the real world? Well, I do know how to write a check (but I haven’t done that in a while, either). To their credit, my parents did their due diligence by making me pay for my own things with my own money and encouraging me to save. But they can hardly give me advice about the future when my own reality is and will be so different from their own.

Beyond living within my means (an important aspect that we will talk about soon!), most of my life has been devoid of decisions related to personal finance. In my early 20’s I bought a book called The Complete Idiot’s Guide to Personal Finance in your 20s and 30s. I readily accepted the early chapters about your first job and budgets and car payments and rent. But once they started talking about mortgages and retirement and taxes, I felt like they were speaking an alien language. My life was too busy to think about such things, and why should I scrimp and save and sacrifice now when I had no hope of saving enough and would probably work until I died, anyway? That was my plan—work until I died. Plus I couldn’t remotely understand what they were talking about.

Fast forward 10 years and hello, reality check! I don’t know about you, but I’m pretty sure wrangling a 160lb Great Dane into the perfect position for x-rays will be difficult when I’m 70. Of course, I may not do this job forever, but it did get me thinking about the future. What would happen if I became disabled? If I got cancer? If I lost my job? If I had a kid? If I lived long enough to be too old to work (it will probably happen to most of us)? News flash: I would be broke.

So I took my head out of the sand and started my own education in personal finance. And then I started talking about it. all. the. time.  Have you heard of this budget software? Would you take out this loan? What kind of interest rate did you get on your mortgage? Are you making contributions to the 401k or a Roth IRA? How much do you spend on groceries? What kind of deductible do you have on your health insurance? Asking all of these questions was enlightening on two fronts:

• Money is a taboo topic, and sometimes for good reason. Money is not just a tangible resource to be spent or saved. It is deeply entangled in our emotional psyche, whether we love it or hate it or somewhere in between. When you talk about money, it requires you to be incredibly vulnerable.
• But I also learned that most of our generation knows almost NOTHING about personal finance. Yes, we know how to pay bills and use online banking and other essential skills (and don’t forget that we know how to write checks! Hooray!).  But even with modest income a lot of us are living paycheck to paycheck (or on credit) and can’t seem to break that cycle. I know of zero people who saved up a 20% down payment for a house. When I say the words “Roth IRA” people’s eyes glaze over and I hear crickets.

While we pay off our credit card every month, earlier this year I did a quick scan of a credit card statement to see where our money was going. Sometime when I know you better and can be more vulnerable I will tell you what I found. But suffice it to say that I realized we were being terrible stewards of our money. That is when we really started educating ourselves about personal finance. And that is what this blog is for—as Jesse says in Pitch Perfect (it’s okay, you don’t need to be embarrassed that it is your favorite movie ever): “You need a money education. A meducation. And I’m going to give it to you.”

So, some caveats:

1)      I am not a financial planner, an accountant, a tax consultant, or any other professional that qualifies me to give you advice about money.  This is simply information based on my own research and experience. Only YOU can make your own financial decisions.

2)      It’s called personal finance for a reason…because it’s personal. We all have different priorities in life and our monetary choices will reflect those priorities. So no judgment here. With that being said, the goal is that those priorities will actually reflect your values—is the money in your life doing what you want it to be doing?

3)   Economic disparity and income inequality are real things, and I do not wish to dismiss the fact that sometimes it feels like an uphill battle.  It’s impossible to save 10% of your income when you can’t put food on the table, and I don’t wish to diminish that if it reflects your experience. We all should care about economic justice, and I encourage you to work towards it with your actions, your voice, and your vote. I hate that our entire economy is built upon endless consumption of stuff that we mostly don’t need. However, this blog is about taking responsibility for yourself within that framework, even if that framework is completely insane.

So there you have it. It is my desire that a money education (henceforth a meducation) will help you to take control of your money rather than having it control you (believe me, I am in this process with you). And what I have to say is nothing new—there are literally endless resources if you have the time and desire. This blog is merely a dissemination of knowledge that I have gleaned, broken down into manageable clumps to keep you from feeling completely overwhelmed and putting your head back in the sand (what I did for the duration of my 20s).

If you have stories or information to share, I would LOVE to hear them. More than anything, I want people to be able to TALK about money without feeling embarrassed, guilty, boastful, or awkward. We have all made some pretty smart money choices, as well as some absolutely dumb ones. But we have all learned something in the process, and it is my hope that we can share what we have learned with each other.

If you’ve made it this far, I am humbled that you actually kept reading J.  Next time, we will talk about the “personal” of finance before diving in to some practical suggestions. Stay tuned for a meducation!