5 Reasons We Overspend and Undersave


I have a scary talent: I can come up with a great reason for why I should buy just about anything. This jacket’s seen better days. I should pick up new sheets before my overnight guests arrive. Chances are, you, too, can get creative when it comes to justifying expenses you’d be fine without.

Behavioral finance expert Daniel Crosby, Ph.D., calls this tendency the “junk food of personal decision-making—easy in a pinch, but bad for long-term health.”

Why do we do it? Because, Crosby says, we need to quell the cognitive dissonance that arises whenever we do something—like buy an expensive gadget—that doesn’t fit with how we see ourselves (such as frugal or sensible). If I want that pair of high-heeled boots, but don’t want to feel like a Real Housewife, I justify it. I don’t own a pair like this; I need to up my game and look professional. Bam! Rational brain approved.

“Humans are meaning-seeking creatures,” Crosby explains. “There’s nothing wrong with that. It only becomes counter-productive when we search for reasons that are inconsistent with our broader goals,” such as purchasing a sweater that detracts from your savings goals, he says. “You need to define what is important to you in your financial life and evaluate how decisions conform with your stated values. Otherwise, you’re moving the target to fit an arrow you’ve already shot.”

The first step, as they say, is admitting there’s a problem. Here’s how to recognize—then talk yourself out of—the five most common spending justifications.

I work hard–I deserve it!

Of course you work hard. So reframe this catch-all excuse by giving yourself credit when you keep your cash rather than letting it go.

“The most effective use of money to buy happiness is in getting experiences, spending time with people you love, and buying freedom from doing crap you hate. Sure, reward yourself, but make sure it’s rewarding in a more lasting sense,” says Crosby.

What’s more satisfying than a hefty savings account that affords you the flexibility to make the life choices you want?

It’s for a good cause.

There’s no shortage of good causes in the world, ready and willing to accept your donations. But Crosby invokes the old oxygen-mask advice (put yours on first before helping someone else), insisting it’s only safe to give money away when your own financial priorities are covered.

“It’s been shown that spending money on others can make us very happy,” he says. “Just don’t cause yourself additional stress by doing it prematurely.”

Remember, you and your financial well-being are worthy causes, too.

I owe him one.

Things get dicey when we use money as a proxy for something else. Crosby cites the work of psychologist Robert Cialdini, who found that nothing is more powerful than reciprocity. “We keep mental debits and credits of who we owe and who we feel owes us and act accordingly,” says Crosby.

If someone’s bought your dinner twice in a row, you probably feel obligated to return the favor. While that’s great for maintaining fairness and social harmony, it can lead to overspending. Fight this urge by brainstorming other ways to “repay,” like offering to help with a project, giving a friend a lift, or doing something else you know he’ll appreciate.

I had a bad (or great) day.

If you’re like me, either does the trick—whether it’s easing the pain of a lousy day or celebrating an amazing one. But you can combat this excuse by zeroing in on what truly cheers you up.

“Coco Chanel said the best things in life are free, but the second best things are very expensive,” Crosby says. “Often, we try and make ourselves happy with the second best things (clothes, food, cars) and pass up more gratifying free stuff.”

His suggestion: Make a list of gratis rewards for good and bad days—a friendly visit, alone time to binge-watch TV—so you have a roster of go-tos at the ready.

“It’s not about asceticism,” he says. “It’s just about doing what works and doesn’t lead to feelings of guilt.”

I’ll save more when I earn more.

Oh boy, does this sound familiar…and dangerous. What you’re really doing here is procrastinating about something important, and further delaying your desired results. The fact is, saving and investing are muscles—use them or lose them. If you aren’t accustomed to saving a portion of your current income, do you really think you’ll spontaneously start down the road?

Further, Crosby notes that setting aside just a small amount early on can add up to a lot later—and it’s very hard to catch up, especially when it comes to investing.

Case in point: If you start contributing 5 percent of a $60,000 salary into a 401(k) at age 25, and receive 3 percent annual raises plus a 7 percent rate of return, you’ll have $1.3 million by 65.

But wait five years, and you’ll have more than $400,000 less for retirement.

So start flexing these muscles—even if it’s just a small percentage of your salary—so these good habits become pain-free practices, and you begin building the life you want right now.