personal finance the psychology of spending by @phroogal

Jason Vitug@jasonvitug

Introduction to Personal FinancePsychology of Spending

Introduction

• The plan is to examine our mindset and spending habits.

• The goal is to understand the inner motivations that cause us to spend.

• The takeaway is to identify our spending behaviors, know differences between needs and wants, and prioritize saving over spending.

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Do you want to be the Starbucks loving apartment renter or the Folgers Crystal’s

homeowner?

Psychology of Spending

• Do you know your relationship with money?

• Are you purchasing goods or building wealth?

• Do you purchase goods that add value to your life?

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Psychology of Spending

• Are you seeking instant gratification delaying true satisfaction.

• Do you know the differences between “needs and wants?”

• Are you sacrificing “what you love for what you like?”

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Spending Habits

The #1 reason why we fail to reach our financial goals is due to: • Mindless Spending– Purchasing goods that keep us from buying the

things we truly want. – Spend money on expensive dinners and drinks but

wondering when you can “afford” a vacation. – Buy a luxury car and complain about not making

enough money.www.phroogal.com@phroogal

Spending Rule:A bargain isn’t a bargain

if you actually don’t need it.

Spending Habits

• Habit Spending– Not out of necessity or wants just habitual (e.g. morning coffee,

lunches, brand loyalty).• Bargain Hunting

– Proactively seeking discounts and sales to validate a purchase that may be unnecessary.

• Impulse Buying– Perception of value or want/need from actual reality.

• Retail Therapy– Mood enhancing because it mimics the feeling you’re in control.

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Spending Habits

What we need is actually much less

than “what we think” we want.

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Saving versus Spending

Spending over Saving• Unknown Future: Spend rather than save because instant

gratification is now and future need is unknown.• Present Bias: Making inconsistent decisions over time favoring

instant gratification over long term returns.

Savings over Spending• Prioritize saving money immediately and use automation tools.• Reward yourself for reaching savings goals.• Build wealth and avoid lifestyle inflation.

www.phroogal.com@phroogal

Spending Rule:Don’t spend more

than what you make.

Spending > Income = Downward Spiral

Mindful Spending

• Awareness of how money is spent to improve quality of life.

• Knowing purchases made today can impact ability to retire early.

• Questioning purchases.– Do I need it?– Do I need it now?– What will happen if I don’t have it?

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Spending Rule:Love it. Need it.Like it.

Want it.

Thoughts on Debt and Financing

• Spending habits rationalizes the need to finance and accrue debt.

• No cash. Don’t spend.• Purchase on credit only when buying long lasting assets with

short lasting financing.• Don’t finance items for longer than their usable life.• Just because you’re approved for credit doesn’t mean you

should spend it.• Ask yourself, “How does the loan or line of credit to

purchase [x] improve my life long-term?”

oowww.phroogal.com@phroogal

Do I have cash to make the purchase now or am I willing

to work more hours in the future to pay for it?

There is nothing wrong with spending. -------------

Make sure you’re aware of how you spend and what

you’re spending on.

What tool can help you prioritize savings, change

your spending habits, curb impulses and achieveyour financial goals?

The Six Letter Word

• Associated with limitations.

• Realizing there might not be enough money.

• Fear lifestyle change.

www.phroogal.com@phroogal

B U D G E T

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Learn more about spending habits and budgeting at