Wednesday, March 18, 2015

The Thought Process Behind Spending Money

Its so hard to save money but easy to spend money. Do you agree?

Most of us would agree to the above statement. We have always been told that we need discipline to save money. The word discipline sounds harsh. It reminds me of the discipline master in school who punish students that misbehave. It reminds me of the regimentation in army which controls our freedom. Is it really that hard to save money?

Since saving money has been a boring and a sad topic to talk about, let's try a different way and talk about spending money instead. What exactly are our minds thinking when we spend money? Perhaps this will shed some light on how saving money can be easier for all of us.

A World Without Money

Imagine a world without money. Will we still be happy if we have no money to spend? In the olden days where Fiat money was not yet introduced, people practice barter trading with each other where they exchanged goods and services without the use of money. In those days, if you want to eat chicken, maybe you can exchange it with the duck you have and if you get tired of having chickens, you can exchange for some other stuffs. As long as both parties agree, the trade can be carried out.

Barter trading may not be equivalent to spending money as you need to exchange your goods for someone's else goods. It really depends on whether you think your goods are worth to be exchanged with another person's goods? Exchanging a cow with a chicken doesn't seem like a fair trade in this case. If we put it to today's context, will we exchange an iPhone with a cow? Which is more valuable in this case?

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In today's world, we don't have to exchange goods for goods any more. Money was created as a medium of exchange to buy goods and services. The more money we have, the more things we can buy. It is not like in the olden days where the stuffs you own will always be limited since you will always have to exchange something for another. This resulted in most of us buying more stuffs than we actually need.

In economics class, I learnt that the Earth has limited resources but humans have unlimited wants. This is the concept of scarcity. As such, when more people want a particular item, the prices are raised up so less people can buy it. Our high housing prices are a result of scarcity. More people want to buy houses but there is not enough of it. It drives prices up.

The Thought Process Behind Spending Money

Money has no value?

Most people spend money and few are savers. The main reason is a lot of us see money as only some paper or plastic we have in our wallets. Worse still when money is in the bank, we only see it as numbers. When we start spending, money seems to have a value now base on the things we spend it on. We receive something we can see in exchange of papers, plastics and numbers. We receive services which makes us feel good. We thought that we got rid of an unreal creature called money which has no value for us.

Does money really have no value? To say the truth, all of us are right when we think that money has no value. It is really just a medium of exchange and is only legalised for use just because our government says so. During war times, money has no value and really becomes just paper then. But should we spend all our money just because it has no value?

Wiring our brain to spend money in a different way

If you realised, till now I'm still talking about spending money and nothing about saving money. The way to wire our brain to spend money differently is to buy the correct things with our money. When we buy the wrong stuffs such as spending too much on luxuries, the money is gone forever. But if we buy assets such as stocks, properties that can put money into our pockets, then the money grows continuously.

That being said, we can still buy luxuries. But I will use the money generated from the assets I bought to pay for these luxuries. In this case, my money continues to grow while I enjoy the luxuries instead of running into financial problems if I just spend on luxuries without buying assets. I get to enjoy and at the same time I have more money. The rich get richer this way.

Less for More

Philip Ng, the CEO of Far East Organisation in Singapore once said:
“The ironic thing about possession is that you don’t possess the possessions, the possessions possess you.” 
When we chase after material possessions, we end up being possessed by the possessions. This is so true as we often see people who own a lot of possessions are still not satisfied with what they have while those who live simple lives are contented and happy. If we can change our mindset to be grateful for the little things in life, it would be so much better. We may just end up happier each day.

If you find it hard to control your spending and have nothing left at the end of every month, try to take note of your thought process and it could all change for the better.

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Related Posts:
1. The chase after money lifestyle and materialism
2. The pursuit of money or happyness?
3. Practising Frugality to Achieve Happiness in a High Cost of Living Environment

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