Why do we get the urge to spend money? Why are most of us on a hedonic treadmill, endlessly upgrading stuff with “better” stuff? Is it because credit is so easily available? Are credit cards, which makes it oh-so-easy to spend money that we don’t have, to blame, as we argued sometime back?

I am convinced that the main reason that most of us are on a financial hamster wheel is due to our tendency to keep up with the Joneses. As regular readers know, our twin boys were born last year and we spent most of the past year in an endless cycle of feeding and changing. Naturally, we were mostly confined to our home and our social life was severely restricted that we hardly got a chance to visit our friends.

Sometime back, my wife took the boys to visit her family and I started to attend barbeques and watch soccer games with our friends. And that is exactly where I got the urge to buy more cool toys.

One of my friends had recently purchased a flat-panel LCD TV and I have to admit that a soccer game looks a lot better in HDTV format. It is much harder to go back to an eight year old, bulky television and soccer broadcasts in a standard TV format. Another buddy of mine recently showed me his newly acquired Tablet PC. Now, I have a fairly new laptop at home, but still I felt that all the cool features of the Tablet PC makes it worth having.

Fortunately, I haven’t acted on my impulses, though I am still lusting after a flat-panel TV and dreaming of watching hockey games in a spectacular format. My favourite Yahoo! Finance columnist Laura Rowley offers the following cure in a recent column on this very topic:

To overcome money envy, we need to figure out our purpose, identify what we love and value most, and make our money obey our values by setting specific financial goals. Because if we achieve the things we value most, we’ll be less riveted by what the neighbors are doing.

It’s just that it is easier said than done.

This article has 10 comments

  1. I totally agree with you about keeping up with the Joneses. Many of friends are making a lot of money and buying lots of toys and it is hard to resist the temptation to do the same.

    Great article. I find that we have resisted large purchases in the past year by severly limiting the amount of money in our chequing account (to $50/day to be precise). This was key.

    The rest goes to RRSP, rent, and some savings to ING in various savings accounts with different names on them. There are no accounts with the name “50-inch LCD TV” on them yet. The account names are things like “vacation”, “Christmas”, “car repair fund”, etc… There is one general purpose ING account for miscellaneous things that we dip into from time to time. I guess in a way, we have followed the advice of Laura that you quoted above, and identified what we value most, which now just basically includes a maximized RRSP for retirement, money for vacations, and some cash put aside to spend on things we really need when they come up (the stuff in our “misc” ING account). Fortunately the “misc” account always contains just enough that we end up spending it on something we really need, BEFORE we think of those things we don’t really need. And the Christmas, vacation, and RRSP accounts, well, those are untouchable.

  2. Although I agree with the essence of your article, I don’t think you used a very good example. From the sound of it, you value watching hockey over the “spectacular format” instead of keeping up with the Jones. Come on. Just buy it 😀

  3. silverman helps

    Hi there, I recently purchased an LCD and a brand new BMW. IN my defense I just got a 30K pay raise.

  4. I think I can safely say that if I had a 30k pay raise that I wouldn’t make any impulsive purchases with it. I’d probably stash all the extra I didn’t need into retirement or some other form of savings (rather than into expenses), then over time reduce my monthly contributions into retirement and savings therefore having more cash per month available for spending.

  5. I think my spending / saving philosophy comes from my upbringing growing up in the maritimes and moving around a lot going from job to job. If there’s something that’s not going to survive my next move, I don’t buy it. Every extra dollar saved goes into investments or savings – every maritimer knows that economic recessions can be long and deep! So, we have to squirrel away every nut we can or else we won’t make it through the winter!

  6. Oh, and I drive a Honda Civic to commute to work, bike or take the subway when I get around on my own time, live in a shoebox 1BR condo and watch a 13″ colour TV that I won at a company golf tournament! My MP3 player is often referred to as a “guitar” by other people, MP3 = manual playing, 3 instruments or less! My only real luxury is my DSL internet connection which I use to check out this webpage! And vacations and beer money, of course! =0)

  7. I’m not really one for deprivation.
    If my financial goals are being met and I have the cash, I buy.
    If I receive a bonus, I invest half and spend half.
    If I receive a raise, I do the same.
    I find if I sock it all in savings, I lose the drive to receive bonuses and get raises.

    Gotta eat the carrot once in a while just so I remember what it tastes like.

  8. Total agree Kimber,

    Once you have a set number you put away in a RRSP or prepayment into your mortgage to achieve your future/retirement goals, you TOTALLY have to buy the things you want. If ‘stuff’ is what makes you happy, or vacations or whatever, DO IT! (note still the part about setting aside the proper amount to achieve your goals first).

    If you keep saving money year after year and not getting/doing anything you want or makes you happy you have missed the meaning of life. Over-saving your lifestyle only makes your kids happy when your dead.

  9. Canadian Capitalist

    Statik, Kimber: I agree that there should be a balance between saving and spending. However, it seems to me that people are spending too much and saving too little, not the other way around.

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