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Don't Let Your Emotions Get In The Way Of Your Logic

By Dara Duguay

Do you ever find that your spending decisions just don't make money sense?

For example, you subscribe to a magazine just because it looks good on your coffee table or because you are now eligible to enter a Publisher's Clearinghouse contest. Your decision to subscribe is not a rational one, since you have extremely slim odds of actually being visited by the Publisher's Clearinghouse van and presented with a large check. In exchange for your million-to-one shot at winning, you pay a monthly fee for a magazine that you never read.

Another example is paying for the premium package each month with your cable company so that you receive more than 100 channels, even though you travel or work several jobs and are rarely at home. And there's the health club membership that you religiously pay for each month but haven't attended in years. It is not logical to spend money and not receive anything in return.

My favorite example involves my friend Nicole, who continued to pay a monthly membership to an expensive dating service even after the service had been successful and she stopped using it. Nicole had been in a committed relationship with Mark, whom she met through the service, for the last eight months. In fact, it seemed like they were crazy about each other.

When Nicole told me that she hadn't stopped her membership, I asked her why. She replied that you never know what direction life can take so she wanted to leave her options open. I told Nicole that she could always rejoin after canceling if her relationship with Mark didn't work out. It seemed a waste of money to me to continue paying on a service that she was not using. Despite all my rationalizations, Nicole would not change her mind.

I realized that spending decisions are driven by emotion as well as logic. In Nicole's case, her emotional reasons were stronger than my logical ones.

Another example of an irrational money move was Ralph's decision to rent his furniture. Upon graduation from college, Ralph secured a position with a firm in Chicago. After relocating there, he chose to rent instead of buy his furniture. Ralph's reasoning was that as long as the job seemed tenuous, he wanted to stay as mobile as possible in case he had to move.

After five years in Chicago, the job was working out very well. Nevertheless, Ralph continued to rent his furniture. His girlfriend Susie discovered this and was shocked that anyone would turn a normally temporary arrangement like renting furniture into something permanent. Susie wanted to prove to Ralph that this was an unwise money move, so she calculated the monthly amount he had been paying to the rental company over the five-year period. The total was stunning; in fact, Ralph could have bought new furniture for this amount and ended up with ownership of his furniture instead of simply borrowing it.

Despite Susie's logical reasoning, Ralph had no intention to stop renting his furniture. Eventually, however, this decision began to make sense. Susie discovered after dating Ralph for two years that he had problems making a commitment. He was terrified to make any decision he interpreted as "long lasting," including commitment to the women in his life and his furniture. Ralph's emotions clearly were in charge.

If you discover yourself making money decisions that are not financially prudent, your first step is to actually make this realization. Then try to become aware of other monies spent unwisely. Look for all examples of expenditures that outweigh the benefits received. The challenge is to weigh the costs against the gains. Once you have identified these expenditures, resign yourself to stop paying for them. The ones that you resist giving up are the ones with the strongest emotional connection.

The next step involves some introspection. When I examined my friend Jenny's inability to watch the Home Shopping Network without buying something, I discovered that her shopping compulsion was motivated by boredom and depression. This compulsion became a vicious cycle. She needed to purchase something to get rid of her depression. After making a purchase, she felt happier but the bill's arrival plunged her back into her depressed state. This depression could only be alleviated through another purchase. Thus the cycle remained unbroken. Until Jenny dealt with the root cause of her depression, this emotional state would continue to govern her future spending decisions.

Emotional reasons behind a decision often are stronger than logical ones. In fact, the majority of money decisions are governed by our emotions and not our rationale. Remember this fact the next time your impulsive urges tell you to "buy that hot new Porsche" while your wallet says "buy a used Honda."

Despite all the introspection and realization of why you do what you do, you still may not easily stop some of your irrational spending. That's all right. Don't beat yourself up, but be aware that when you need to cut down on your expenses, the irrational expenses are those that should be targeted.

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Dara Duguay is Executive Director of the Jump$tart Coalition for Personal Financial Literacy, a non-profit organization promoting financial literacy, and the author of several self-help financial books. Her most recent is Don't Spend Your Raise: And 59 Other Money Rules You Can't Afford to Break. Her books can be found at or at any major bookstore.