🦜Velvet Secrets

Discover luxurious secrets from a Duke professor of psychology and behavioral economics

What are the secrets to being financially savvy? There is a general belief that one of them is that you need to spend less. While the logic behind that is understandable, it falls under the big pile of misconceptions, according to Dan Ariely, a psychology and behavioral economics professor at Duke University.

“It’s not about spending less; it’s about spending your money better.” But how can we do this? In today’s newsletter, we’ll find out the top 4 money tips from Ariely’s arsenal of financial savvy.

Let’s get to it!

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‘New’ Stuff Doesn’t Stay ‘New’

Are you making more earnings than you used to? Did you come into some more money by chance? Maybe a consistent and higher paycheck coming in weekly? One of the first things that may occur to you is to spend that extra cash, and of course— you’d want quality.  

So your budget expands. Buying new stuff is a great happiness boost. After all, retail therapy is a popular concept. 

But here’s the thing. The novelty of items being new wears off pretty quickly. And any happiness we get from such spending fees is short-lived. Besides leaving you with a nagging need to get more new stuff, it could burn a huge hole in your newly acquired finances.

“You would be wise to avoid any spending sprees on new or “trendy” things”

—Dan Ariely.  

As he puts it, we need to remember the hedonic treadmill theory. This theory suggests that humans have a knack for quickly getting used to new things, whether they’re good or bad. It’s like a mental treadmill that keeps us running in place when it comes to happiness.

No matter how great or terrible something happens, we eventually return to our usual level of contentment. So, it’s like we’re constantly chasing happiness, but we end up right back where we started. It’s a reminder that lasting happiness isn’t found in external things, but rather in our mindset and how we perceive and adapt to life’s ups and downs. 

“When we acquire something fresh and novel, the initial excitement is undeniable. However, as time passes, we adapt and become accustomed to it. Imagine obtaining a brand new television, sofa, dining table, car, and bicycle all within a single week. Fast forward a month, and these possessions are likely to fade into the background of our consciousness. Their impact on our overall happiness and quality of life gradually diminishes.”

Of course, this doesn’t mean you shouldn’t enjoy your money. But it needs to be done in a way that every (major) purchase is done with a lot of thoughtfulness, and the bigger ones are spread— as opposed to being made all at once. 

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All About The Future

The future is mostly uncertain, and it can be troublesome to think about something you have absolutely no hints about. But not thinking, or preparing for it could lead to an even worse fate.

Sometimes, it’s okay to get worried. 

“Be very much worried about having a lot of debt, or any debt at all” Ariely says. 

“A young age is an expensive time to get into debt and a really good time to start saving.”

Some top tips Dan also wants us to take note of are:

1. Avoid borrowing money as much as you can.
2. Learn to live below your means. Leave plenty of room between you and your expenses.
3. And of course, establish a healthy habit of investing and saving, especially for the future

Ariely also advises that everyone should start maximizing their 401(k) deductions as early as possible. The reason? While you may argue that there are other things to focus on, especially if you’re just starting your career, it is important to get things going so you capitalize on the idea of compound interest. It works better the younger you are. 

🔙The Past Matters Too….

Most people largely try to escape the past; and for good reason. But those who fail to learn from history are doomed to repeat it.

It’s easy to think financial planning is only concerned with what’s in front of you. But there’s more to it. Reflecting on past spending could hold more answers to your problems than you could imagine.

Ariely talks about one of his studies, where he had asked participants (over 1,000 consumers from ages 20 to 36) to look at their previous credit card transactions and identify which purchases they regretted or were satisfied with.  

The result? Millennials tend to derive 70% satisfaction when making longer-term purchases, in contrast to 50% fulfillment from impulse purchases. Repeated buys on the other hand gave 10% more satisfaction than spending on one-off items.

With these findings, Ariely advises that we should reflect on their past purchases, and identify problem areas, so they can avoid them in the future.

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🔊Say It Loud, We Save & We’re Proud

You should learn to take pride in your savings. What does that mean? Well, according to Ariely, most people take a miserable stance when it comes to saving. Most people always approach it from the standpoint of longsuffering.

Ariely adds; you can decide to play the defeated demeanor or choose to find joy in it, seeing it as a healthy habit, like exercise or sleeping regularly.

“…it pays to ‘find joy’ in necessary financial habits like building your savings.”

It helps to treat saving as a means to an end rather than a burden, and success could also come with you treating yourself. It could be something beneficial, or something you’d appreciate!

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Spend BETTER, Not LESS

As we navigate the world of personal finance, let’s remember that true wealth lies not in the quantity of our possessions, but in the quality of our financial decisions. With these four money tips, we can break free from the cycle of mindless spending and embrace a more intentional approach.

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