The Habit Society

⚡️ Hey, big spender

To: Society Members

Good Morning!

It’s a beautiful day to refer some people to The Habit Society. Share your unique referral link with friends who we both know can use some better habits. And in the process, get a personalized habit plan and free THS merch.

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Hey, Big Spender

With all the time spent at home, comes all the time spent adding to cart. This is a topic that people don’t typically associate with habits, and therein, we suspect, lies the problem.

Why do we buy?

Charlie Harary, a well-known investor, lays out three pillars for why we are attached to our credit cards by an umbilical cord. He calls it, The Trap of Materialism:

1. Physical things are easy to value since we can physically sense them. In other words, physical pleasures (like new Nike shoes, AirPods, Vitamin-C serums) create stronger neural connections because they are paired with dopamine, the chemical released by our brain in response to physical pleasure.

2. The pleasure of physical things is limited. Essentially, material pursuits are only enjoyed when actually experiencing them. Since they don’t offer any enduring pleasure, they make us look forward to repeating the activity (the buying) to feel the pleasurable sensation of dopamine again. Have you ever realized that when you spend a little too much one day it becomes a downward spiral of spending? Yeah, same. It’s a negative feedback loop at play. You buy, you crave, you buy more, you crave more.

3. We develop a tolerance for buying physical things. In other words, material pursuits always need to get stronger to outdo the stronger growing neural connections. The pleasure of buying becomes too familiar and less thrilling and therefore, forces you to up your spending game.

Wise words by Harary…When we spend more of our time in pursuit of materialism, we wind up not being able to distinguish between what we need and what we want.

And another reason…

The Diderot Effect: the spiral of consumption that happens when you upgrade something in your environment, and therefore, have to upgrade the rest of your environment to match it. As a result, we incessantly buy things that we otherwise would have not needed to feel satisfied.

Insight from Unlocking Greatness by Charlie Harary

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That $4-A-Day Coffee Habit

In our first-ever newsletter, we introduced the concept of The Compound Effect. Without getting into too much financial detail, every dollar you spend today is an opportunity missed to invest that dollar and collect interest on it. Now, take that $4 coffee you buy every day and multiply it by 365 days, then 20 years, then add the opportunity cost foregone onto it. Just kidding, Darren Hardy did the work for us. Check out his graph:

Compound Effect

As you can see, the ultimate cost of a four-dollar-a-day coffee amounts to $51,833.79 in 20 years. We know, we also wish we knew this sooner. Seemingly small transactions can be the difference between you and financial freedom. Start buyin’ pods people. As Hardy says, “the earlier you start making changes, the more The Compound Effect works in your favour.”

Quintuple the Price…hope that’s right

Basically, a rule of thumb is to multiply the cost of something by five to take The Compound Effect into account. Whenever there is a sale at Sephora, and you think you’re getting a good deal, do this. Is that $90 eye cream worth 450$? If it isn’t, then take it out of the cart.

The Compound Effect by Darren Hardy

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$pain Money
Spain Money

Here’s a neat idea. Every time you successfully resist the urge to spend money on another $35 candle, transfer that money into a separate bank account called ‘Vacation Fund’. Now, every purchase decision will be between that item and going to Barcelona. Hey, your choice.

Other Tactics

Track it…for many of us, our spending habits stem from a lack of awareness. Like we’ve mentioned in regards to other habits we try to cultivate, we must be aware of the choices that lead to certain behaviours. Track. Every. Thing. You. Buy. Not forever, but for long enough to realize what you are really spending your money on, and where you can cut off any excess fat. You’ll find out how much that back massager actually set you back.

Darren Hardy on tracking his expenses…This brought an instantaneous awareness of the many unconscious choices I was making that resulted in money pouring out of my pockets. Because I had to log everything, I resisted buying some things, just so I didn’t have to take out the notepad and write it in the dang book!

Start Slow...Don’t cut out everything all at once. We should know by now that this type of “go full force” mentality doesn’t last. Start by saving 1% a month, then 2%…and so on.

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To sum up, here are useful tools to stop spending:

1. Track your expenses: Here is a very simple Spending Tracker app that will get the job done.

2. Multiply every item by five then decide if it’s still worth it.

3. Set up a vacation fund.

4. To counteract the Diderot Effect, only buy things that fit your current environment. For example, don’t upgrade the couch, if you know you’ll have to refurnish the rest of the room to match it.

5. Only go shopping with a pre-determined list.

6. Only shop with cash so the money you can spend is finite. And, so that you actually understand the cost of your purchases.

Got any other spending habit tips? Don’t keep them to yourself. Reply to this e-mail so we can share them with our readers.

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Personal finance is 80% behaviour.

David Ramsey, author of The Total Money Makeover

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$pend some time referring your friends to The Habit Society by sharing your unique referral link. You’ll save some money by getting free THS merch.

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