Four dysfunctional ways we think about money, and how to escape them

SPONSORED CONTENT: This content is brought to you by UOB EVOL Credit Card (formerly known as UOB YOLO Card). It offers up to 8% cashback on online and contactless spend.

Long before I became the personal finance nerd I am today, I went through a YOLO phase in my early teens and early 20s.

My parents would give me pocket money at the start of the month, and I would blow it all within the first two weeks.

For the rest of the month, I would experience some form of adolescent bankruptcy. The dejection of not being able to withdraw cash from an ATM because I had less than $20 still looms large in my mind.

Mind you, this wasn’t because I was given very little money. My parents gave me quite a decent amount of pocket money. Turns out, I just wasn’t very good at managing it.

Today, we’re going to unpack some reasons why people overspend and make poor money choices.

The hope is that once we become more self-aware of these habits, the mindset towards money will evolve. The next time, you might just be able to stop yourself from making a spending decision you regret.

Needing to have things after seeing others having them

You are surrounded by peers who spend extravagantly, and make purchases that you can’t afford. This is made worse by social media where everyone seems to be living their best lives.

Compared to them, your life seems dull and miserable. You didn’t have a staycation with an infinity pool. Neither did you get new rims for your fancy new sports car.

Because of this, you feel inferior and become upset with yourself. Perhaps you might even spend money to emulate what you see.

How to move past it:

There are two things at play here.

The first is that people often only show the best sides of themselves on social media. People are richer, healthier and better looking than they are in real life. Once you realise that, it’s a lot easier to be kinder to yourself.

The second thing is that we do not exactly see the sacrifices or struggles people go through to afford those nice things. Context matters. Your friend could have worked 14-hour workdays to get their new car. Or they could have rented it for the weekend, just for the gram.

Without understanding context, negative emotions such as jealousy or entitlement fester easily.

Further reading: Rich Man in the Car Paradox. Keeping up with the Joneses, Relative Deprivation

Giving up and losing hope in building wealth

A long time ago, you wanted to get your finances in order. You can’t remember exactly when. It’s been so long ago.

Everything was going great. You saved up some money, had a tidy emergency fund. Maybe you even went to the brokerage and opened up an account.

But then the bad luck kept coming. First, the economy crashed. Then it was the job market. Then, a family emergency. You kept up the good fight for a while, but eventually even your emergency fund got depleted.

Over time, you arrive at the conclusion that your financial future is hopeless, and you will never have a chance at retirement. Or owning your own home. Or having a job that you enjoy.

Pessimistic? Not exactly. Everyone else around you thinks the same way.

How to move past it:

Facing setback after setback is a very real reason why people who are trapped in the poverty cycle find it extremely difficult to break out of. Psychological factors, coupled with systemic problems can be extremely powerful.

This cannot be denied.

However, if you’re reading this blog, we’d wager there’s a decent chance you are not trapped in the poverty cycle. And it would be disingenuous if you claim you are powerless to change the course of your financial situation.

One way to overcome your inertia? It’s about taking small steps instead of big ones. Forget about all these articles telling you to save $100,000 by 30. Just work on being wealthier than you were in the previous month.

In my case, saving the first $1,000 after three months of scrimping and saving did that for me.

I remember very clearly thinking that perhaps, one day, with enough perseverance and grit, I could one day save $5,000, 10,000 or even $100,000.

These small milestones eventually became stepping stones to help me get to bigger savings goals – every time I reached one, I’d feel more confident and less helpless about my financial goals.

PS: Tracking your progress with a spending app (such as the UOB Mighty app) can also be a reminder of how far you’ve come along.

Also see: Shibal Biyong, Self-fulfilling prophecy, Learned helplessness

Spending to save money

It has always taken a lot of willpower to walk away from a good deal – this is the very reason scams still work in the Information Age.

The boomers were attracted to the great deals of ‘closing down sales’ with slashed prices. Even if those shops remained open for a good 10 years.

Our elder siblings were suckers for huge discount packages provided via Groupon.

These days, online sales are selling us the same dream – the promise of a great deal.

The promise of scoring a good deal gets us excited and triggers possibly irrational buying behaviour.

In reality though, buying things simply because they are on sale is an awful way to save money – no matter how attractive the discounts are.

How to move past it:

Discounts work on us because of a couple of factors.

One of them is urgency – people don’t want to miss out on a good deal, which causes them to FOMO and make impulse buys.

Another is because of the Anchoring Effect, which makes anything with a slashed price tag immediately seem like a better deal.

This is what worked, in my experience. I stopped buying new things because they were ‘good deals’, but instead switched my spending framework to focus around these three factors for my existing items so I would use them for as long as possible.

  • Breakeven time: Do I use this item enough to justify it?
  • Cost per use: How much am I paying each time I use this item?
  • Cost-benefit analysis: Will buying this item put me in a better financial situation?

Over time, I developed a habit of taking pride in owning and using things for a long time instead of constantly wanting to buy new things.

Sometimes, the best deal is often just not spending any money.  It’s more sustainable for the planet, too.

CAVEAT: We are not shaming people who buy things on discount. We just prefer letting your needs determine what you buy, vs blindly buying what’s on discount. Optimising your purchase with a credit card such as the UOB EVOL Credit Card that gives you cashback is a good practice.

Refusing to leave your comfort zone to make good money decisions

You make a purchase because you feel bad for the salesperson, and you’re afraid to turn them down.

You are reluctant to say no to sharing the cost of an expensive gift, even if you are broke for the month.

You don’t want to talk to your partner about money, because you are afraid of all the emotions that come with it.

This is known as avoidance.

The practice or an instance of keeping away from particular situations, environments, individuals, or things because of either

(a) the anticipated negative consequence of such an encounter

or (b) anxious or painful feelings associated with them.

How to move past it:

What might help is you acknowledging the opportunity costs of avoidance and opting to stay in your comfort zone.

After all, in the same way time can grow money, it can have the reverse effect if you avoid developing good financial habits.

The longer you put off investing, the more your money gets devalued by inflation.

The longer you take to fix your bad financial habits, the harder it’ll hit you later in life.

When it comes to problems, you either solve it now when it’s small. Or later when it’s bigger.

Stay woke, salaryman

A message from our sponsor, UOB EVOL Credit Card

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While you can get by perfectly fine without one, you will certainly lose out on the benefits that come with them.

Getting a Credit Card also gives you additional cashback, perks and helps you with your credit score.

As always with all credit cards, remember to:

  • Spend on needs first, instead of chasing rewards or even cashback, no matter how attractive
  • Always pay on time
  • Never carry your balance over to the next month

UOB EVOL Credit Card (formerly known as UOB YOLO Card). now offers up to 8% cashback on online and mobile contactless spend with no annual fee (just make 3 purchases per month for 12 months).

If you look at the fine print, the maximum cashback you can earn still hasn’t changed ($60 total, $20 for online spend, $20 for mobile contactless spend and $20 on other spend). Do note that the minimum spend is $600 a month

You can also pair UOB EVOL Credit Card with UOB One Account to earn higher interest of up to 2.5% p.a. on your savings. Plus you can use UOB Mighty App to better track your spending habits, where you can get insights such as:

  • Purchase analysis
    Track and manage your spending to stay on top of your budget
  • Monthly cash flow
    Plan for the month ahead with these insights so you won’t have to worry or feel guilty about overspending
  • Discover deals
    Living below your means doesn’t always translate to denying yourself of things you need, especially if it helps to improve your quality of life.If you’ve carefully considered a purchase and you’re ready to make the purchase, you can check out UOB Mighty App to see if there are any deals that you can enjoy with UOB EVOL Credit Card.

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