The psychology of cutting back on lattes
June 08th, 2011 - 35 Comments
I’ve talked about Big Wins instead of savings on pointless small expenses like lattes.
Frugality zealots don’t understand this and accuse me of arguing that people can’t manage their expenses and that, gasp, is it REALLY that hard to cut back on this stuff?
They are right. In general, people can’t manage their expenses, and yes, it is extraordinarily hard to cut back on expenses over the long term. This is why I talk about the psychology of money, including how people are cognitive misers, and Big Wins like earning more money, negotiation, and automation.
A couple years ago, I wrote a post called Is frugality about saving money or making you feel less guilty?
“What is the point of saving money on obsessing about small expenses like lattes? Is it to truly save money, or is it to reduce guilt?
How much of “saving” money is about guilt? Do we feel guilty about splurging for dessert or buying those jeans…but then do it any way? How many friends do we know who say, “Yeah, I really should save more money…”
So it was with great fascination that I read a recent article in the Wall Street Journal: A Dollar Here, a Dollar There. But So What?
The author writes about her struggle to cut back on lattes, but concludes that sometimes it’s worth it to spend on these small things.
I agree 100%.
However, let’s look deeper at the article.
“Sometimes a cup of coffee is just a cup of coffee. But when ordering it requires using words like “double tall” and paying more than $4, a cup of coffee can become a point of marital inflection.
Last week, we went to Los Angeles to visit my sister and her family. I flew in with our two little kids on Thursday, and my husband met us there a few days later. When he climbed into our rental car, Joe gave me a quick kiss and began surveying the mess (amazing what two kids can do to a backseat of a car in a mere 36 hours): “I see evidence of four cappuccinos, totaling probably $20,” he said.
When we first met, I thought it was cute how he could tally up the cost of things so quickly. That was a long time ago.”
Here’s a woman who absolutely loves her morning cappuccino, but admits that it has become a “point of marital inflection” between her and her husband. These trivially expensive beverages cause major rifts when finances are discussed:
The problem, though, is that cappuccino is not a line item in our family budget. We don’t make room for such things when deciding how to spread our dollars. Last year, Joe asked me if I wanted to add it, cautioning me that I’d need to cut out another cost.
“If you worked 50 weeks a year,” he explained, “and got a $4 coffee every workday, you’d need to subtract at least $1,000 from other discretionary spending on things like exercise or manicures.”
So I cut out the cappuccinos. For a couple of months, anyway. And then I began to indulge again.
The yo-yo of spending, cutting back, and starting to spend again is something I describe in this article:
After elaborating some more, the author admits what I suspect is true of most people when it comes to personal finance and spending:
“The truth is: When it comes to small indulgences — fancy espresso drinks, tubes of drugstore lipstick — I see the budget as an aspiration. Like a diet, it’s something to respect and work toward.”
Unfortunately, this is a common frame of a budget: It begins as an ironclad rule (“This time, we’re going to stick to this for sure!!”), but over time, as budget and actual spending diverge, it becomes aspirational. That is code for I’m not doing this anymore but I’m too guilty to acknowledge I can’t keep a budget. The author, like many Americans, believes money is all about willpower, sacrifice and drudgery.
Some points I’d like to emphasize:
- Constantly over-analyzing tiny purchases is exhausting and ineffectual. This is one of the great joys of earning more money: I don’t have to worry about paying for cabs or picking up my friend’s drink. As a cognitive miser, this is a great relief. I can instead focus on the things I really care about.
- The whole point of money IS to spend it on things you love. Pleasure purchases should not be a source of shame (IF your bills/investments/retirement are continuously funded).
- Americans have been propagandized to believe that the only way they can improve their financial situation is to cut back indiscriminately. When they try — and invariably fail — they feel guilty…yet the spending behavior continues. This is why guilt is rarely a persuasive emotion.
- Look at the words the author uses in the article: “Problem, cautioning, cut out, I supposed I feel I should be rewarded, rationalize, adhere.” Even though she concludes that she should spending guilt-free on minor purchases, it’s nearly impossible not to betray the feeling of guilt, which oozes out from nearly every paragraph.
- The fastest way to stop caring about the cost of lattes, designer clothes, etc. is to nail your big wins: Automation, investing, picking the right accounts, negotiation, earning more, planning ahead.
I love the author’s conclusion. But this is a terrific example of how deep our invisible script is about cutting back on minor expenses — as if it will really make that big of a difference.
It won’t. Focus on the Big Wins and get on with your life.
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