To spend or save: What you do now affects when you can retire and your retirement lifestyle

Why is it that with so much information on money readily and cheaply available, most retirees rely on a government pension to help fund their income?

If we receive a regular income during our working years and are not saving enough to support ourselves in retirement, it can only be because we are spending it.

The amount we earn can influence the amount we can save, but it does not determine whether we save it or spend it. I have known various professionals – lawyers, barristers, accountants, financial planners, medical practitioners – who worked hard throughout their lives, but still needed a government pension to fund their retirement.


What are your spending habits?


Advertisers and marketers are keen to find every way possible to get us to open our wallets. We’re presented daily with myriad opportunities to fritter away what we could have put towards our retirement. They key to combating this is having effective money habits.

But how do we form effective money habits? Understanding what influences our spending decisions is crucial. Behavioural economics – the study of the psychological processes involved in economic decision making – provides an insight into why we can’t always explain what we do or even what we want.


Common triggers of unnecessary spending include:

  • Fear of missing out (FOMO).
  • Social pressure (keeping up with the Jones).
  • Hyperbolic discounting (preferring short-term pleasure to a much bigger one in the future).
  • Herd mentality (the world is buying it, so I should, too).
  • Credit card ease / easy terms (known as mental accounting theory, where the person decouples the purchase from the eventual payment).
  • Habit, e.g. the “latte factor” (I need to buy a coffee or I can’t function).
  • Self-reward (I achieved that so I deserve this).
  • Quality assumptions (own label is not as good as an established brand).
  • Reciprocity (you gave me a $100 gift, so I have to give you one, too).
  •  Income creep (expenditure expands with income).
  • Decision fatigue (I’m tired, I’ll just agree to buy so it’s done).


Do any of these triggers sound familiar to you? We all make the occasional poor decision about money, whether it’s an impulse buy or a decision not to spend (or invest) when we should. The key is to not make these decisions habits!


How you can beat the marketers:


  • Defer purchasing decisions to a time when your willpower is strongest – usually after sleep.
  • Get a system to manage your cash.
  • Use a prepaid debit card
  • Go to an ATM and get cash to pay – two actions instead of one.


The real issue about money is not how much we make, but how much we keep, and what we do with the surplus. Understanding what drives us to spend it is the first step to having better behaviours that will improve our economic situation for the short term and the long term.


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