I bet you didn’t know you were an author did you. Whether you recognise it or not we all tell ourselves stories to justify and rationalise our spending. Some of those stories are short blogs, and others are full length novels!
What do I mean by justifying and rationalising our spending? I looked up the Merriam-Webster dictionary to see what they had to say about it and this is the definition of justify, “To provide good reason for the actions of [someone].”
Interesting. What about rationalise? “To think about or describe something (such as bad behaviour) in a way that explains it and makes it seem proper, more attractive etc.”
I probably don’t need to add much more as those two definitions really sum it up. But I am going to.
We were at a dinner party recently, and the usual question of “what do you do” came up. Generally one of two things happens when I say I am a money mentor. The person suddenly has to go and talk to someone else (the same thing happened when I used to say I was an accountant). Or I get chapter and verse about how good (or bad) they are with money.
This particular evening, I ended up in quite an animated conversation with a couple I didn’t know particularly well. Every second sentence was a justification or rationalisation for their decisions. Here is a snippet towards the end of the conversation.
“We spend everything we earn, but that’s OK because we have investments which will generate income when we retire.”
“What type of investments?” I politely asked.
“Commercial property, we have great tenants and they cover all the costs so it doesn’t cost us a penny. We do have a big mortgage but it is tax deductible.”
I couldn’t resist I had to ask how long until they retire.
“Two years” they replied. At that point I bit my tongue and decided I needed to circulate.
Let’s just unpack this conversation.
- This couple are two years away from retirement and the end of the big salary, so their income will be dropping.
- They currently spend all their income so aren’t adding to their retirement fund (by reducing debt or anything else).
- They have an investment property that has debt on it that is going to take longer than two years to pay off. They are totally reliant on their tenant to do this for them.
From where I was sitting this just didn’t make sense to me with either my money mentor or accountant hat on.
Over the years they have rationalised and justified their standard of living and spending habits on the premise that they will be secure in retirement because they have an investment property with the added bonus of tax deductibility.
This is pretty high up on the scale of justifying our behaviour.
I am sure we have all been in the situation (I know I have) where you want to buy something that we know we shouldn’t so we do the maths to break it down into a daily cost and decide we can afford it, we will just cut back somewhere else.
The long term impact of this type of rationalising isn’t quite the same as gambling with your retirement.
We rationalise and justify our spending to make ourselves feel better about our actions. The scary thing is quite often we aren’t consciously aware that that is what we are doing. We probably don’t want to know because we have to face up to making decisions that may not be as good as we thought.
David Krueger in his book The Secret language of Money puts it like this, “The goal of cost justification is nearly always the same; legitimising an expense that we really know is of questionable legitimacy.” and, “Rationalisation is the articulation of seemingly good reasons for bad decisions.”
How do you cure yourself of these types of bias? The only way to do it is to put yourself under the spotlight. For some decisions it is best to do this with an independent person. Really examine the decision in terms of the big picture not just in isolation.
Ask yourself questions like,
- How does this fit in with the plan I have for my future (in other words your goals)?
- Am I spending this to feel good?
- Am I buying this because I deserve it? Watch how many times you use this argument particularly on lower cost decisions.
- What impact is this decision going to have in one year? Five years? Ten Years?
My challenge to you is have a look at your most recent purchase and examine the stories you told yourself at the time. If you are really honest with yourself, was it a good decision or not?
Lynda Moore http://www.mymoneyseeker.com