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The psychology of cutting back on lattes

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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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67 Comments

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  1. ‘We don’t make room for such things when deciding how to spread our dollars.’

    Is it not a simple case of understanding yourself before figuring out where you can cut back?

    I KNOW I don’t enjoy going to the gym, I SHOULD workout, therefore I decide to join a gym because some work-out guru tells me it’s the best thing for me?

    Guess ‘simple’ is different for different people.

    Razwana

  2. You’ve said all this before, but I think this might be one of the clearest .. or maybe I’ve just read it enough from you that I expect to get the message. You got it right about the point of money being to spend it. I’m also starting to be more of a believer about how budgets don’t work. I personally don’t have a problem saving, but I see that I have other difficult to break subconscious problems and I see that others have the budgeting problems. Spending is an addiction and kicking addictions is hard. Easier to earn money so that the addiction, which brings pleasure, can be maintained. Now all we need is to avoid lifestyle inflation to go along with the increased revenues.

  3. I’ve got to say, the whole “conflict” in the article is silly. As the husband said, if it’s something you do every day it’s not a spontaneous indulgence.

    Add it to your budget and stop bellyaching!

    After reading the post long, long ago about Ramit’s friends budgeting their “splurges”—clothes, going out, etc.—I just created a line in my budget for eating out instead of guilt tripping myself for spending so much on something I do every day. It’s dumb.

  4. I tried to cut back on the little things like lattes. I thought that saving all the money in the long run would satisfy me. But it left me wanting and made me feel guilty. Instead, I’m focusing on the bigger picture of the big wins. Changing my mindset, wish me luck.

  5. I don’t have a budget, but if I did, I would put “eat out once a week” in the budget. Or “buy coffee every day” or whatever else it was I was actually spending my money on. The original article is dumb. I would be p’d off if my wife agreed to a budget and then ignored it because she thought it was “aspirational.” At least have the stones to be honest about what you want in life.

    • Couldn’t you say the same about people who resolve to lose weight…or improve their finances…or stop smoking…or spend more time with their family…or drink less?

      That’s a lot of people to be mad at for being “dumb.”

      Perhaps there’s something else going on here.

  6. I’m quickly tiring of the New Frugality. I think it is all code for “Americans, adjust your expectations and learn to be happy with less”. I want my America back – the Land of Great Expectations and Lots of Chutzpah to Make it Happen. Thanks for contributing to this cause. You give me hope and inspiration.

  7. Interesting to think about, esp with the continuing debate over will power/emotions and financial decision making (e.g., http://www.tnr.com/article/environment-energy/89377/poverty-escape-psychology-self-control and http://bps-research-digest.blogspot.com/2011/06/does-retail-therapy-work.html).

    What really stood out to me was that she links her coffee to her unpleasant commute: “Somehow, a daily $4 beverage helps wash away all that grit and incivility.”

    I’ve been thinking about this problem a lot after starting a different job and failing to consider just how rough the commute would be. Tracking the effect this is having on everything else I do is pretty surprising.

  8. Why judge someone as ‘dumb’ if they don’t have the same perspective as you?

    From my perspective, it’s about two things – social conditioning and understanding emotion over habit:

    1. When my friends/family decide to save money, they immediately cut back on what they think they are spending more on on a daily basis – i.e coffee purchase. I do the same, *until* I read something like IWT, which changes my perspective and I then analyse what I emotionally need, over what I can live without purchasing, and saving *feels* easier.

    2. Is coffee an emotional purchase for the writer of the article, or has it become habit? I went through the same thing and realised my morning coffee purchase was as a result of habit. I changed my route into the office and realised no urges for coffee existed.

  9. Well said, it is just like a diet, as soon as people tell you to cut back on something, you want it. I used to be of the school that you needed to deprive yourself in order to save, but why? Why can’t I pay myself first automatically and work with the remainder of my funds? So no more depriving myself, but I am not just splurging all over the place either.

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