We all know personal debt sucks, so I dedicated a post to the sure fire way to burn a hole in your pocket – emotional spending.
We can talk about how debt in business as a shortcut when you’re trading a degree of risk for speed can be highly productive, but that’s for another post. Right now I want to focus on the idea of emotional spending.
Let me explain with an example from my personal life.
Earlier in 2018 I found myself in the midst of a miniature personal crisis. Things weren’t going to plan with my business and I felt like I wasn’t making the leaps forward in my personal and entrepreneurial life that I expected.
I felt a lack in my life, a lack of control and a lack of progress and subsequently I found myself compensating with impulsive spending on a variety of things like home delivered food and retail therapy, as seen below in these 4 almost back to back Uber Eats orders of high calorie grease loaded comfort dishes.
It was a dramatic cycle of negative emotion, negative self worth followed by an open wallet emotional spending spree….for months!
Luckily for me there was a point at which I hit rock bottom in this negative down-cycle and having a degree of self awareness I eventually saw through the coping strategy I’d subconsciously employed and implemented the following tool to help pull myself out of it.
One of the first steps towards true financial freedom is the ability to critically look at our purchases and recognise the role our emotions and emotional state plays a role in our purchases. It’s being able to hit pause and ask the question – Are these things we actually need/want, or are we just trying to scratch an emotional itch? In the heat of the moment that can be bloody hard. It means being able to recognise and manage our emotions.
This is really important, as it translates into the various domains of life.
On a business front, I’ve also noticed moments in my life where emotion has crept into my decisions and i’ve made impulse purchases for equipment or assets that if I really took a step back and looked critically at everything, I would have realised I didn’t truely need those things. I was just spending to exercise control or to artificially create a sense of progress when there wasn’t one organically.
I’m not actually sure where I picked this up from, but I wanted to share this little tip that’s helped me immensely learning how to keep my finances in control and more importantly, keeping my emotions in check.
Quite simply, build specific timeframes into purchases based on the $ value of that purchase.
Thinking about that Postmates/Uber Eats/Foodora meal tonight? Instead of impulsively splashing $40 like I did every second day, think about it for an hour or two and see if you can come up with another option that isn’t going to break the bank.
How about those new sunglasses for $300? Wait 2 weeks and see how much you really want them.
Or, want a new sofa for $1000? Wait a month before pulling out your wallet and throwing down that credit card.
This really simple little buffer will help take the emotion out of your spending habits by giving you space and taking away that magical lever marketers know how to pull – that sense of urgency.
Everyone’s income and discretionary budget is going to be different but I’ve found the guidelines below have really helped me keep this in check. Feel free to adapt it up or down based on a really critical true assessment of your available income and your genuine needs as an entrepreneur and evolved human being living in this world of consumerism.
YOUR EMOTIONAL SPENDING BUFFER GUIDE:
$0 – $100: Give yourself a minimum of 2 hours up to 2 days to really sense check that purchase
$100 – $300: I’d wait at least a week to put that purchase into perspective to truely decide if you need it or you just want it
$201-$500: Create a buffer for these larger purchase of 2 weeks to give you some mental space to evaluate that transaction
$501 – $1000: This is where I’d let that emotion cool off for a month before deciding to pull the trigger on that new item
I hope that little quick tip helps some people. Give it a try for the next few months, stick to the plan and let me know if it helps in the comments below.