The Dangers of Being an Underspender
Some people struggle to control their spending…others struggle to spend at all. The latter are extreme underspenders—and that isn’t a good thing. Bottom Line/Personal asked psychologist and financial planner Brad Klontz to explain why this could be a big problem and what an underspender can do to overcome it…
Unhappy and Unhealthy
People who can’t bring themselves to part with money might seem like role models to many, but they often live unhappy lives of unnecessary deprivation. They even might be unhealthy because they won’t pay for preventive medical or dental care. Even in cases where underspending isn’t quite that extreme, it still can lead people to live drab, monotonous lives—lives in which they are not terribly unhappy, but because they don’t do things and try things that require shelling out some cash, they are not really as happy as they could be.
It’s not clear how common extreme underspending is. Underspenders rarely seek help because they generally don’t believe they have a problem—in even the most extreme cases, they tend to consider themselves fiscally prudent, not miserly. But extreme underspenders often cost themselves money in the long run by refusing to spend what’s required to properly maintain their bodies, homes, cars and other possessions.
The Roots of Underspending
Financial fears are at the heart of extreme underspending. To an impartial observer, it might seem that these underspenders have no money worries—they tend to have plenty of savings and very low expenses. But in the mind of an underspender, there is always a danger of going broke that must be addressed—by not spending.
This fear typically is rooted in family history. Many extreme underspenders grew up in households that were chronically short of money…or that experienced a severe financial shock, such as a bankruptcy, or a financial threat at some point. Others grew up in households where there was sufficient money but where one or both parents harbored money-related anxieties that dated back to their own childhoods.
Facing the Reality
Before you can solve your problem, you have to acknowledge you have one…
• Ask yourself whether your financial caution is reasonable or excessive. Extreme underspenders typically cannot answer this question on their own—they truly believe that they are acting reasonably. If one or more telltale signs apply to you, ask your spouse, siblings, adult children and anyone you trust whether they think your frugality is excessive. These signs include the following—you are regularly accused of being cheap, perhaps in a joking way…you chronically decline to seek medical or dental treatment for fear it is too expensive…you avoid doing things that sound enjoyable, even though you have enough income and savings to cover the cost…you frequently worry about running out of money, even though your income is well in excess of your expenses.
• Alternative: Pay a fee-only financial planner a few hundred dollars to examine your financial situation and weigh in on whether you are spending much less than you safely could. (If you cannot bring yourself to pay a planner to do this, consider that to be one of the signs that you really do have a problem.)
• Trace your financial anxieties back to their source. Do you recall serious financial problems or anxieties in your household when you were a child or a young adult? If not, ask your siblings, parents or other surviving family members whether they are aware of any money problems or anxieties during your formative years. Learning the root cause of your underspending will make it easier to admit that this underspending stems from an irrational fear, not fiscal prudence. Some people find that seeing a therapist can help them cope with fears rooted in the past.
• Reflect on whether your underspending is helping you or hurting you. Has your extreme frugality made you happier…or has it cost you opportunities to enjoy your life? Has it caused strife with your loved ones? Can you think of times when trying to save a small amount of money cost you a larger amount? As you look back, are there things you have not done that give you pangs of wistfulness, such as trips you could have taken…events you could have attended…hobbies that interest you that you could have pursued…and possessions you could have owned that would have brought you pleasure?
Solving the Problem
Steps you can take…
• Pay a financial planner to determine how much you can safely spend without any realistic risk of running out of money. If you see a financial pro to determine whether you have a problem, as mentioned above, also ask him/her to provide this advice. This won’t just make it mentally easier for you to spend money…it also will help you sleep easier at night knowing that your fears about running out of money are not justified.
• Make a few purchases that you can reframe as savings. What could you spend a small amount on today that could save you a larger amount tomorrow? This might include obtaining preventive health or dental care…having maintenance work done on your home or car…purchasing sufficient homeowner’s, auto and/or umbrella insurance to protect you against a financial disaster…or buying nutritious food rather than cheaper but unhealthful food. “Money saving” purchases such as these can serve as initial, small steps toward more reasonable (and more fulfilling) spending habits.
Alternative: Buy gifts for people you care about. You may find it easier to spend on loved ones than to spend on yourself.
• Force yourself to spend money on something purely for yourself—and completely frivolous. This will be extremely difficult, but it must be done—underspending is rooted in anxiety, and the most effective treatment for anxiety is facing the thing you fear.
Example: Get a massage. Almost every extreme underspender I have ever met considered massages a total waste of money…but after trying one, most admitted that they enjoyed it—and this helped them realize that enjoyment is a legitimate reason for spending money.
• Make it a monthly habit. Onetime financial frivolity is not enough to alter a lifetime of underspending. At least once month, make a purchase that you consider frivolous but that brings you enjoyment. The amount you spend should be large enough to make you uncomfortable but not so large that it greatly affects your bottom line.
Meanwhile, start making a list of pricey things that might be enjoyable to you—this might include renting a vacation home or upgrading to a bigger TV. Once you become comfortable with your small monthly frivolous purchase, choose something from this list of larger purchases that you can fit into the safe financial parameters provided by the planner you spoke with and give it a try.
Brad Klontz, PsyD, CFP, executive director of financial psychology and behavioral finance at Occidental Asset Management, LLC, an investment advisory firm based in San Francisco. He also is an associate professor of personal financial planning at Kansas State University and coauthor of Mind Over Money: Overcoming the Money Disorders That Threaten Our Financial Health. OccamLLC.net Date: July 15, 2015 Publication: Bottom Line Personal