Money and Being:

What would you do if you won the lottery?

What would you do with a million pounds?

Our eyes light up at these popular conversation-starters. Our minds dart across all the excesses and extravagances we could bring into our lives.

I’d buy an island
I’d get a Ferrari
I’d start my own fashion label
I’d have a massive party
I’d give it to my family and set them up for life
I’d give it to charity
I’d buy a football club
I’d get a New York penthouse
I’d buy a farm
And fill it with animals

We are never short of ideas. We quickly assemble a strong, personal vision of how we’d spend the cash and what euphoria it would bring.

Away from the fantasy of winning millions of pounds, our minds still buzz with the constant urge to spend money - albeit in a less dramatic way.

There’s a well-known phrase, which you’re probably familiar with: ‘You are what you eat’. It succinctly explains the basic concept that if you put good stuff in your body you can expect the benefits of a healthy physique and if you put bad stuff in your body you’ll be more prone to illness and fatigue.

With money, there’s a variant riff: ‘You are what you spend’. Your spending patterns ultimately reflect who you are. The key difference is that there is no designated ‘good’ way of spending that you can simply adopt or a clearly-defined ‘bad’ way of spending that you can avoid.

Spend as you are

We make countless decisions all day, every day. It’s been estimated that we are exposed to an average of 5,000 advertising messages a day. Many of our actions in life, both big and small, wear a financial aspect: Every meal we eat, every journey we make, every item of clothing we wear. Everything we buy, everything we don’t.

Think about the home you live in and all the things in it - there alone lies a vast number of financial choices you made, all in one spot.

Think about moving around. Do you have a car or use public transport? If you have a car, did you choose to buy it outright or have it on a monthly lease or hire-purchase? Did you go for a new, modern car with less than 20,000 miles on the clock? Do you upgrade every couple of years or run it in to the ground? When you use public transport, do you research your route and seek out the cheapest ticket or opt for the quickest at all costs? If it’s a sunny day do you walk or cycle instead?

Think about the phone you have and the contract it’s on, a snack you pick up at the station, the new bed sheets you just purchased, those shoes for your friend’s wedding, the hotel you pick for a weekend away in the Lake District, a few coins in a charity box on your way into work, a drink with a friend on the way home after it.

Think about something as simple as breakfast and all the microscopic monetary choices it contains - the type of milk, cereal, bread, tea, bowl, spoon, kettle, dishwasher tablets.

When you knit together all these mini-decisions, a profile forms; a picture of your character and your belief system. It shows to the world what kind of person you are and what kind of person you want to be. Your spending profile says what your diet is like, how you want to look and where you socialise, to what extent you value your home, your family, your wellbeing, your appearance. It shows how you feel ethically towards the planet and morally about humankind. It mirrors your lifestyle preferences and your life principles. You are continuously reflected through your purchasing.

If your spending is in line with your Values, your Life Story and your Money Plan then you’re spending brilliantly. The more our spending veers away from our Money Plan and into random throwaway oddities, the more likely it is that we’ll never realise those big dream events, our lifetime goals - a beautiful home, a great education for our kids, a string of adventure holidays, a luxurious retirement.

Getting our spending lined up, and keeping it so, is not quite as easy as it sounds. Mother Nature has not wired our brains favourably in this sense. So in this chapter we’re going to look at optimising our spending. We will, by default, look at how to make savings on the mundane, unimportant stuff - the necessary evils - and the low importance stuff, but purely so we can funnel even more money towards those crucial, exciting life goals. This is about spending freely, intentionally and consciously on the things that really matter.

Mind over matter

The relationship between spending money and our mental state is intriguing. We are complex and consistently irrational beings. Combine that with the flurry of spending urges that relentlessly strike away at our brain and you get a heady cocktail that is juiced for spectacular failure. Understanding the psychological triggers that spark these urges can help us deflect them and channel our money more skilfully.

When we buy things, a part of the brain, the insula, is activated. Now, the insula normally becomes active in response to an unpleasantness. It’s warning us of something bad on the horizon. So, when you’re about to buy something, if your insula is working to the max it says “nooo”. The more active your insula, the less likely you are to complete the purchase. It’s giving you a bad vibe. The less active your insula, the more likely you are to carry on and buy anyway - and perhaps buy beyond what’s healthy for you.

Following this through, spending can be linked to pleasure and pain. If the insula is barely responding, you’ll buy, and it’ll give you pleasure (or diminish a certain pain). You’re considered ‘a spender’. But if genetically your insula is very active, you’ll hold back. In that case, not spending your money, saving it, will bring joy. You’re considered ‘a saver’.

A lot of studies into spending patterns tend to take this modelled approach of spender versus saver, creating two profiles at opposite ends of a spectrum. This is fine, and useful, but our spending traits are more sophisticated than that. We spend money for all kinds of reasons and in different contexts.

Instant gratification is the driving force behind a whole raft of our spending. Some of us are more vulnerable to it than others. In the Marshmallow Test in the 1960s, children were offered the choice of one small treat immediately or, if they waited, two small treats. Follow-up studies showed that those who could resist the instant hit and wait for the bigger prize achieved better academic results years later. The forces of nurture and nature are, again, very powerful here.

Equally as interesting were the observations made during the 15 minutes the kids had to wait. They covered their eyes, put their head in folded arms, squirmed and gurned in anguish. Some sang or made up little games as a distraction. It seems the more we think about something that is just out of reach, the more keenly we want it.

Daniel Kahneman and Amos Tversky took such science to new levels in the seventies and eighties. Through various experiments they found a major flaw in one of the long-held assumptions underpinning economics: that humans make rational decisions with money. Unfortunately, we don’t. We create perceptions and make miscalculations all the time. In one study their participants said they’d drive across town to save $5 on a $15 calculator but not to save $5 on a $125 coat. Other studies proved that the brain reacts almost twice as much to financial loss (pain) than it does financial gain (pleasure). This is why many people are bad at investing - they get spooked too easily at short term dips and take their money out, thereby securing a loss.

A major authority in this field, Richard Thaler, devised a scenario where students were told to assume they had just won $30. They were then offered a coin-flip, the result of which would be a loss or gain of $9. Most said they’d take the coin-flip. But when offered $30 for certain versus a coin-flip in which they’d get $21 or $39, most said no to the coin-flip and took the guaranteed $30. The way prices and products are displayed to us can have a violently disruptive effect on our thinking. The scary power of framing.

Another catalyst for irrational behaviour… love. If we want to show our affection for someone else we often buy something that gives them pleasure and strengthens the connection between them and us. It makes them like us, we hope. In the head-spinning early stages of a relationship, we can be prone to spending large sums in the name of love. It is a highly-charged emotion that gets us behaving and spending illogically - a human emotion that many businesses prey upon and profit from.

We may also spend money, beyond our intentions, when we’re bored, feel down or when we’ve had a bad day at work.

We can spend money out of shame, guilt or potential embarrassment.

We can spend money through lack of confidence or identity.

We can spend money through envy or frustration.

We spend money when stressed or rushed.

We spend money to feel safe and protected.

We spend money through fear - of missing out, getting old, getting ripped off, losing our hair or crashing the car.

All these robust emotions can take over our psyche and breed uncontrollably strong spending urges. It’s noticeable how so many of these emotions, these states of being that persuade us to over-spend, are negative. We might also spend liberally on a night out, or because we’re celebrating, but generally-speaking, we’re less inclined to over-spend when we’re in a good, balanced mood. Why? Because, well, we’re simply content and don’t need anything. We often spend money, beyond the essentials of life, to erase or dilute a negative.

We can spend more and spend irrelevantly - out of tune with our Values - at different times of the day, week, month and year too. Late at night, for example, as fatigue sets in, we are less resistant to all manner of temptations, and that includes buying stuff we don’t really need. Our barrier to the targeted and well-honed online sales techniques is at a low, vulnerable ebb.

In the UK, a 2019 poll showed that 22% spend more than half their monthly wage within 48 hours of getting paid (not including rent or bills). The typical British household spends an extra £800 in December in the run up to Christmas when all sense goes out of the window up and down the land - a 30% increase on a standard month.

Social pressure and cultural pressure can prod us into spending more than we’d like. We reciprocate gifts to the value we receive them. We feel compelled to put a tenner in the office collection if we see everyone else doing so. We can spend more when we’re out with a group of friends. We want to pay our way (or at least be seen in that light).

Advertising strategies exploit other tracks of our mental weakness. Discounting is perhaps the most common: ’Was £100. Now just £50. Buy now!’ Deep down, given a little time to reflect, we may cynically wonder whether the cut-price jacket really was ever £100, or consider that it only cost £10 to produce, and that we don’t really want the damn thing anyway. But in that moment, we can get drawn in by the high anchor price and the substantial discount. We’re made to think we’re saving, not spending.

If we get a two-for-one deal in a restaurant, it makes us feel good. It doesn’t make the food any better and we may have had no intention of going to the restaurant in the first place, but it makes us feel like we won.

This is linked to the scarcity impulse. We instinctively grab for things that are in short supply for fear we may not get the chance again. Pricing creates the illusion of scarcity. It may not be available at this price again, so we are made to want it more.

A similar mental process takes hold in bidding wars, whether it’s for a house we determine to be our dream home, or an online auction for a pair of trainers. And once we’re engaged we’re quasi-owners, so not only do we want it badly, we feel like we already have it. It’s ours to lose.

Brand marketers have a bucket of tools to pick from. They use numbers to sell their goods (8 out of 10 owners said their cats preferred it), promotions, free samples, product bundles, endorsements from extremely well-paid celebrities, competitor comparisons, glamour (sex sells!) and peer group pressure. When done well, these all have the propensity to get a slice of our money.

Statistically, emotional ads tend to be more successful than rational ones. Common recurring themes include love, loneliness, pride and empathy. To invoke an emotional response, ads frequently use humour, fear, excitement and sadness. They use typography strategies, colour strategies. Changing the colour of one clickable button on a website can dramatically increase sales.

The human brain is highly susceptible to all these tricks and flashes. It can take a lot of resolve to stand true and firm to our Values; to cut through the everyday noise. There are so many hyperactive shots pinging our heads for attention.

The key to readying ourselves for this onslaught of emotional spending abuse is habit formation.

The force of habit

We create a habit, whether it’s good or bad, through a process of: Trigger. Behaviour. Reward.

Trigger: We wake up sleepy
Behaviour: We drink coffee
Reward: We feel bright and alert, so we associate waking up with drinking coffee

Trigger: We feel hungry at 3pm in the afternoon
Behaviour: We eat a biscuit
Reward: We no longer feel hungry, so we associate 3pm in the afternoon as the time we should eat a biscuit

Trigger: We have a stressful day at work
Behaviour: We open a bottle of wine when we get home
Reward: Our stress subsides, so we associate a bad day at work with needing to drink wine. (Or even just getting home from work.)

Our habits are all very changeable. We create, develop and retire habits throughout our lives. At an early age we learn to brush our teeth and tie our shoelaces. When we learn to drive, we build a set of mental rituals that keep us safe on the road. If we have children, our whole lives are revolutionised with a barrage of new routines, for which the old ones are instantly ditched.

An awareness - of your habits and the habit loop - is the biggest factor in forming new, good habits and breaking old, bad habits. Simply being able to identify the triggers, behaviours and rewards in the loop means you can work at interrupting the cycle, or starting a new one.

Taking the ‘biscuit in the afternoon’ example above, you could set your alarm for 2.45pm each day and go for a stroll to disturb the trigger. Or put the biscuit tin on a high shelf and have a pot of carrot sticks on your desk ready to hand. Or change the time you have lunch - some days go early, some days late - so your mid-afternoon hunger pang has its timetable thrown off course.

Changing context, location or timing like this are all successful ways of dismantling a formed habit and constructing a new one. A good time to make big lifestyle changes like giving up smoking is when you’re on holiday, since you're already in unfamiliar territory and a lot of your triggers and contextual routines are already messed up.

When we have a child, change job or move home our routines are disturbed. At such pivotal life moments we can most easily make the biggest changes to our habits, including our spending.

You can make a sweeping change across a whole bunch of related habits by reconfiguring your belief system. If you’re fed up of getting fast-food takeaways, because of the money it costs and the implications for your health, then you might want to instil into your belief system that ‘fast food takeaways are nasty’, or even ‘they are killing me’. Make a list of all the things you could do with the money you’ll save by not buying takeaways. (We spend on average nearly £450 a year on takeaways - in London, it’s a lot more.) Immerse yourself in statistics about how unhealthy takeaways are for you. Read about heart disease, diet, fitness. Convince your mind that takeaways are the work of the devil.

If you smoke, hard-wiring your brain to think ‘smoking is disgusting and expensive’ and ‘I’m going to be a clean and healthy non-smoker from now on’ might feel like a colossal re-engineering project. But it can be far more transformative than the piecemeal mantras of ‘I’ll cut down this week’ or ‘I’ll only smoke at the weekend’.

There’s no denying it’s a far bigger effort to change your belief system in this way but if you can achieve it, your habits and behaviours will neatly jiggle into line to suit. You’re going from the ground up, rather than from the top down. Creating an identity - ‘I’m a runner’, ‘I’m a writer’, ‘I bake’, ‘I sew’, ’I’m great with money’, ‘I’m an investor’ - can forge a whole new set of wonderful habits and behaviours.

Most habits can lead to addiction. Drink too much and you can become an alcoholic. Smoke every day and you’re addicted to smoking. Spending is no different. You could argue that spending £300 a month on clothes, coffee or chocolates, as some people do, is addictive behaviour. It’s repetitive, high frequency activity that’s draining our finances and doing nothing for our long-term wellbeing.

We can all fall into the trap of making small mental excuses for some of our buys: ‘It’s my guilty pleasure’, ‘it’s the end of the week, I deserve it’, ‘It helps me unwind.’ This is also very much aligned to classic addictive behaviour. But spending is rarely tarnished with the ‘addiction’ brush. The big guns - government, retailers and banks - rely on us spending to bursting point. The last thing they want is a cultural barrier or social stigma creeping in to curb our spending habits.

In fact, at a celebrity level, reckless spending is almost lauded. It is portrayed as wild and flamboyant when we read of Elton John frittering away £40 million in 20 months, including £293,000 on flowers alone. Or Celine Dion buying a $2 million humidifier. Or Paris Hilton getting a dog-house for $325,000. George Best as a drunk was viewed with pathos or disdain but we grinned at the lovable rogue when he said “I spent a lot of money on booze, birds and fast cars - the rest I just squandered.”

Clear the clutter, spend free

There are loads of brilliant, practical little tricks we can use that help build up a habitual defence mechanism to the urges of irrational spending.

Wide-ranging surveys commonly suggest anything from 75% up to 90% of people in the UK and the US make impulse buys. Using a mini-blocker can help floor those quick-fire purchases. When we’re on the cusp of buying something, we can train our brain to take a step back and think through a simple three-step checklist, like:

1. Do I need it or want it?

2. Can I afford it?

3. Is there anything I’d rather spend my money on?

The pause in itself gives us a helpful perspective and cuts out a lot of needless little buys. Similarly, you could create a mental habit whereby you resolve to sleep on it overnight and decide in the morning. Or adopt a rule that you don’t buy late at night, say after 9pm, or that you don’t buy tired. Or hungry.

Retail therapy gives us a lift, in part, because it gives us a feeling of control. But there are other control-tasks we can draw on to replace retail therapy - like phoning a friend, cooking our favourite meal or watching our favourite film.

Literally keeping our distance from physical products is an effective safeguard against over-spending. Touching products moves us closer to buying them. A feeling of ownership creeps in. It’s the psychological base for ‘try before you buy’ schemes and it’s why the protocol of test-driving a car is so meticulously constructed.

When we’re out with friends or work colleagues there’s a swarm of social interactions playing havoc with our senses. It’s so easy to spend money we don’t really want to. Having a budget in mind before you go out can help.

We commit to many things in the spur of the moment, when our emotions are ripe for a product, only for our interest to peter out or our priorities to change. Streaming services, the gym, charity direct debits, magazines, beer and wine clubs, regular grocery orders like pet food. Breaking the monthly subscriptions is a good way to test whether you really need these things or not. You might get the momentary annoyance of having to physically buy again on the first of each month but you might also find there’s hundreds of pounds worth of stuff you’re paying for every year that you don’t use or need.

It’s psychologically harder to contemplate giving something up or to cut down. We feel like we’re losing out as a result. But it can be the opposite. Removing one thing from your life gives you the time and energy to add something new. It can give you freedom and open up new opportunities. You can challenge your needs versus luxuries by experimenting with your routine lifestyle. For example, go without your phone one day a week, cycle to work instead of getting the car or train, or have a ‘buy nothing’ day. Discovering what you can do without is rejuvenating.

Try to identify your sunk-cost purchases. The coffee maker that feeds off expensive coffee pods. The games console that needs new games. Hobbies can be another blood-sucker. It’s so easy to take up a new pastime like golf, cycling or photography and, in the excitement of the first few weeks, we can accessorise like crazy.

If we have a car, we feel we must drive out to the countryside at the weekend, even though it’ll cost us £20 in petrol, £20 in food and drink and £5 in depreciation. National Trust memberships. We’ve had our fill but decide to go to some castle 50 miles away because it’s free entry when we get there. Gigs. We’re exhausted from a long day at work but we go out because we already have the £20 ticket and then spend an extra £50 on merchandise, drinks and transport.

Holidays always cost us a lot more than we bargain for. The website BoringMoney ran a survey that found Brits spend an average of £691 on the ticket price of a summer holiday (flights and hotel) but an additional £1,000 on associated extras like holiday clothes, transfers, pet-sitters, spending money, insurance, pre-holiday beauty treatments, and so on.

A dog or cat also costs more than the few hundred quid we might initially spend on bringing them into our home. Over their lifetime, including food, vet bills and insurance, you’re looking at nearly £100 a month each, on average.

Loyalty schemes can psychologically seduce us, especially those where you get a stamp on a card each time you buy a drink or burger. The physical format and experience of accumulating towards a reward is a well-practised marketing ruse. Would we really have bought six in a month without the card? If we’re on five, it’s not really ‘two for one’ on the next. We’ve still bought six for one.

The price of almost anything is at its peak when brand new. The curve tumbles dramatically in the weeks and months following a product launch. You can be looking at a-something-new priced £1,000 that fall to £500 after a few months and £100 after a year. Before buying a car, phone, watch, food processor, TV or whatever, it’s handy to think about how long it’ll last and get the best cost per month you can.