When it comes to saving and spending, which side of the fence do you belong on? Are you the compulsive saver who takes profound pleasure in watching your money pile up in your account? Do you plunge into a pit of despair every time you use your Credit Card to buy something?
Or are you a diehard shopaholic who doesn’t give a damn about how you are going to survive tomorrow? Regardless of which one you are, the question is – have you ever thought about why you handle money the way you do?
Many people believe that their money management habits are a result of years of conditioning by their parents or guardians when they were kids. But, is that really the case? We don’t think so!
Then, how can we deduce that our money habits are shaped by our upbringing? Okay, we’re not ruling out the effects of upbringing completely. But, we believe that our brain chemistry plays a larger role in shaping how we view money.
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What’s The Buzz About Brain Activity And Money Habits?
A study was conducted by Rick, Cider and Loewenstein from the University of Michigan on the influence of brain activity on spending habits. The researchers observed the activity in an area of the brain called the insula when the subjects were trying to make buying decisions.
The insula is often stimulated when one is experiencing something unpleasant. So, when there is high stimulation in the insula, the person will stop whatever he or she is doing.
But, how does the insula affect our money habits? Well, when you’re making a decision to buy something and there is high stimulation, you’re more likely to stop yourself from making the purchase.
So, people who save more, most likely tend to experience high activity in the insula, while the ones who spend more experience less activity.
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There was an experiment conducted by a few Stanford researchers in the 60s, popularly known as the ‘marshmallow experiment’. The experiment was a means to test delayed gratification in kids.
The researchers offered a tray of goodies – marshmallows, pretzels, cookies – to nursery school kids. The kids were asked to pick any one treat. The condition was that if they ate it immediately, they wouldn’t get more. But, if they waited for a few minutes without eating it, they would get another one.
These kids were observed till they were fully-grown adults and it was concluded that those who had delayed their gratification achieved more success in life than the instant-gratification lot.
So, if you are a spender, you fall among the ones who preferred instant gratification. When you have cash in your hands, you’ll be tempted to spend it instantly and you won’t be able to fight the temptation. Even though you know that if you keep it, you’ll be able to accumulate a lot more, you’d still prefer satiating your senses.
It’s no wonder you don’t have much by the way of savings. However, that doesn’t really bother you too much. You prefer living in the moment and spending all your money on materialistic pleasures.
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If you find that you are spending excessively and want to curb this habit, here are a few ways to curb your impulses and spend less:
Say NO to any type of credit – When you go shopping or to the supermarket, carry cash with you. Not only does this stop you from overspending, you’ll also have a fair idea about how much you’re spending.
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Pay on the go – No running up tabs at your nearby grocer or paying upfront for any services. Pay for anything and everything on-the-go. It will help you keep a tab on where your money is going.
Be candid about your goals – We all have different financial goals. Telling your family and friends your financial plans will help you stick to them. This will indirectly help you cut down on unnecessary expenditure also.
Rewards are necessary – Every time you achieve a goal, you need to reward yourself. Instead of going on a spending spree, allocate a certain sum of money as a ‘reward’ for each goal achieved.
Ask yourself before spending – Before you make a purchase, take a moment and ask yourself if you really need whatever it is that you’re buying. It is important to draw a line between your needs and wants.
The future matters – Although you are often told to live in the present, it is not wise to completely disregard the future. At least from a financial standpoint, you need to be prepared for what may come and plan for your retirement, your kids, etc. These are things that you should not avoid.
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The savers are the ones who don’t believe in instant gratification. They are the ones who opted to not eat their treat and waited until they got another one in the marshmallow experiment.
They are the ones who sacrifice their wants to build a cushion in their Savings Account. But, sometimes, they also tend to push away needs such as getting Health Insurance just so they can have more money in their bank account.
They rarely even carry a Credit Card balance (doubt they even use one unless it is an emergency situation).
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If you are a saver, you probably hate shopping. Every time you have to spend money, you get emotionally stressed. But, do you really need to sacrifice so much? You live only once, so shouldn’t you loosen up a little and enjoy a few pleasures in life.
As a saver, here’s how you can wire your brain to enjoy spending a little bit every now and then:
Purchases are rewards – Don’t think of your purchases as a waste of money and crib over it. Instead, treat them as a reward for managing your money well. You’ll value your purchases more if you think of it as a reward.
The future matters – You certainly don’t want to go through life harbouring a lot of regrets? If you don’t spend some money on enjoying yourself now, you’re going to regret it at a later point in life.
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So, are you a spender or a saver? We’d really love to know. So, feel free to drop your comments in the comments section below.