Why We Buy: The Psychology of Spending Money

Why do we buy what we buy?

Maybe you have to have a $2,000 Gucci purse. Maybe this is a must-have for you. You wouldn’t possibly carry around something less regal than this. Why? Is the Gucci purse better at carrying your wallet, cell phone, and Advil? Do less expensive purses have holes? Do the straps break? Are we to believe a $20 purse cannot effectively hold your stuff as well as a $2,000 purse? Are the Italians somehow superior when it comes to folding a piece of leather and adding a strap?

Functionally, a purse is a purse. The difference? A Gucci purse is beautiful and a $20 purse looks like crap. But why does that matter?

Here’s why. We buy because of how it makes us feel.

Period. End of story. We may feel better about ourselves carrying an expensive purse. We may see others looking at our expensive purse in envy and feel good about ourselves. We buy because of how it makes us feel.

The buzz or high we get from the purchase quickly fades and requires us to buy more and more. I’ve seen this countless times over the years with clients. The “dream” house just isn’t big enough, new enough, or nice enough after a year, and the next dream house is bought. Wash. Rinse. Repeat.

If you were stranded on a remote island by yourself, would you care what kind of purse you had? We buy based more on feeling and less on function.

So what’s the big deal?

It usually isn’t a big deal, but sometimes we can overextend ourselves, financially buying stuff that makes us feel good but that we can’t afford. It’s like the second glass of champagne on New Year’s Eve. It feels good in the moment, but we wake up with a terrible hangover the next day.

Buying based on feeling is ephemeral.

This is one of my favorite words, by the way. It rolls off the tongue so nicely. Ephemeral. It means short-lived and fleeting. The buzz or high we get from the purchase quickly fades and requires us to buy more and more. I’ve seen this countless times over the years with clients. The “dream” house just isn’t big enough, new enough, or nice enough after a year, and the next dream house is bought. Wash. Rinse. Repeat.

Like most of what I’ve talked about in this course, there is a great benefit in awareness – just being conscious of why we buy can help us make better decisions and influence how we spend and what we spend on.

Is there another way you can satisfy that need without having to spend?

Your homework for tonight, and frankly, for the rest of your life, is to think about not what you want, but why you want what you want.

And if you do buy something, do you really know how much it costs? It may have a price tag, but the true cost is a little different. More on that in the next lesson.

The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.