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!