The Pain of Paying...and an Ironman. How to Overcome Your Spending Habits
Four years ago I competed in an Ironman; to be honest, as soon as I heard about it, I knew at some point I would do one. I've always been super sporty, and I love endurance events; I do not move quickly so long distance was always my go to. I also reckon I have a high threshold to boredom which helps with endurance sports.
You're probably thinking "I have no interest in doing an Ironman, so what is she talking about?"" and "what does this have to do with personal finance?".
Both completely legitimate points. Bear with me.
For those of you that don't know what I am talking about, the ironman involves swimming 2.4 miles, cycling 118 miles and then running a marathon, back to back. It invariably takes a professional man around 8 hours, and a professional woman 8:30 to 9 hours. For a me, it takes around 12 to 13 hours.
The thing is, my Ironman was wonderful but at the same time, terrible; I was super excited and super nervous about the race in general. After waking up a little too late (4a.m) I got down to the start line and hurriedly put my wetsuit on. My Ironman was in the beautiful town of Nice, with the bike ride taking you out to the rolling French hills. When the horn went off I ran head long into the sea with hundreds of other competitors. The first bit is always the worst as lots of people thrash by you; goggles get knocked off, faces get kicked, you take on a lot of water trying to catch air. Once this part was over, other than just getting on with it, I was sure I was done with the worst bit. How wrong I was.
I threw up twice in the swim. I didn't do any salt water training; just fresh water; I didn't realise that swallowing sea water makes you sick. (Note, sometimes in general I don't do enough questioning on things to fully understand what they'll be like. I'm not sure whether I'm ignorant, or naive or just too excited about doing something that I forget about all the research bits). Next up I got two bike punctures which was grim, particularly after climbing 1,800 meters, having legs of jelly and trying to pump tyres up with some shitty little hand held pump. Finally the run was just awful. The first 13 miles went well, and then I hit "the wall". For those not in the sporting world, "the wall" is this invisible blockade that says "you're done with running today". You try to move and you can't, you try to take on water or food and you can't. Those last 13 miles were torturous and involved my mother (who does not run for pleasure) trying to run alongside me to keep me going.
The above is just the actual race; the even worse part was the training. 4a.m starts to do enough training hours before work, no social life as I was tired all the time, constantly eating to get enough energy (imagine what that did to the bank balance), weekends spent doing 80 miles on the bike followed by half marathon runs, a lot of alone time even when I found people to train with and a relationship that had to be axed as I had no time for them, and they had no desire to start cycling (cycling is, however, a great sport that I believe everyone should try at some point!)
While all this happened, I look back on this event with such rose tinted glasses and think "maybe I should do another one". I remember the finish line where they shout your name, and say in a deep American accent "Corinne, you are an Ironman"; cool, that's nice. There's also the hoards of spectators who come out to cheer you on and shout after you, and then, there's the kudos. You did an Ironman and now have lifetime bragging rights.
And then I remember all the crap I went through to turn up at the starting line, and then all the crap I went through to get to the finish line, and I remember, NO, this is not a good idea.
All these non pleasant memories are what I term "the pain". The pain of doing something can create such a big barrier in your head, and vice versa can remove any negativity for doing something.
For those of you that follow my Instagram, you know that I regularly work out, and that's sufficient for now. There's internal thoughts on doing a marathon, maybe in Athens. It's home of the marathon and my boyfriend, so it's a consideration (and the food is freaking amazing!).
You'll have also seen on my Instagram that I recently went and saw behavioural psychologist, Dan Ariely's talk entitled "Irrational Money".
For those of you that don't know Dan is a famous behaviour economist, New York Times bestselling author and founder of the Center for Advanced Hindsight (hahah - I love this research institute name).
The talk was to discuss the illogical world of personal finance, to help better understand why irrational behaviour interferes with our best intentions when it comes to financial management, and what we need to do to make better decisions. He has recently released a book called "Small Change" which you can purchase from Amazon here.
So...back to pain...one of the core things that Dan talked about was the pain of an experience and how it effects our desire to go through that experience again. I finished my Ironman thinking that was grim, and that's the last of it. There was a high pain experience at the end of the challenge particularly (the run) which meant I was over that race.
The same is also true with money, having a high pain of paying.
Pain of Paying
If there is a high pain of paying, you are less likely to spend the money. Cash has the highest pain of paying; physically transferring over money to an individual in the form of cash is painful. You remember the experience; the £4.85 you spent yesterday buying potatoes and salad at the corner green grocer. You may be getting an awesome gadget or item of clothing at the end of it, but giving someone that money is super painful. Experiencing this pain of paying means we are less likely to purchase the item in the first place. Cash can be held and touched and is visible.
This is the opposed to cards, particularly contactless, Amazon check outs and Apply pay. ALLLLLLL these things make your cash invisible. You take the gadget to the till, tap your card or your phone and off you go. Limited pain of paying. Until you check your bank account, and think "woah, how did I spend all that money in Gap" (not that I did that the other day, but they do have good sales on).
Stores and eCommerce platforms continue to develop ways to make sure you don't feel the pain of paying. Amazon recently announced a "bricks and mortar" store where you don't pay for the goods; the amount is deducted later after you have left the store. You don't need to take out your debit or credit card, no money is involved, you don't even have to click "use these details".
Put pain in the way of you paying. Take cash out and pay for things in cash. I know the change is annoying, and sits in the bottom of your bag or back pocket, but use money to create a higher pain of paying. This along with other smart ways can help you save more of your monthly income.
Dan's next point was around relative versus absolute.
Relative versus absolute
Most of us think of our finances in relative terms rather than absolute terms.
Imagine you go into a pen store, and you pick up a pen and take it to the till. The pen is priced at £15, but when you take it to the till, the person behind the till states that if you walk two blocks down to their sister store, the pen is actually only retailing for £7. It's a bright and sunny day outside. What would you do? The majority of people would say, "sure" I'll go ahead and walk to the other store, but the pen for £7 and save £8.
Now lets imagine a different story; you go into a super expensive clothes store, and pick up a suit or dress suit for £120. You try it on and it's fantastic. You take the suit / dress suit to the till to pay; when you get there the person behind the till says if you walk two blocks down to their sister store, the suit / dress suit is retailing for £112, which is an £8 saving. It's a bright and sunny day outside. What would you do? In this instance, the majority of people would purchase the suit for £120 instead of walking for the £8 saving.
Why? At the end of the day, in both scenarios, there is an £8 saving. In the first example the £8 saving is high relative to the price. In the second example the £8 is low relative to the price. Now lets imagine we are at an outlet or discount store, where everything is "reduced" significantly; our brains see that it was £500, and is now £240. A bargain right? Or is it? If we would walk into a store see something retail at £240 and think, yes, I need this, then fine. We are more drawn to purchase something if we deem a bigger reduction.
On this note in general, for many reasons, we are particularly vulnerable if we spend significant amounts of money on a regular basis. At these higher amounts the savings seem bigger relative to the starting amount. Similarly, the problem with spending large amounts in one go, is that you get used to spending these amounts; if you are constantly exposed to buying expensive dinners, shopping binges etc, you will used to blowing large sums of money in one go).
So, as much as discount stores and outlets *cough* Bicester Village *cough* is wonderful, you'll probably come away with more than you need as relatively speaking the prices are all reduced, and yes, you do need those shoes, and that jacket, and that bag, and maybe that suit, and wooooooahhhhhhhh, we're doing another Ironman, as compared to the marathon in Eqypt, it's not that bad.
Anyway...lets talk about the third point he covered which was, fairness.
If we see a high amount of effort going into something, we are more likely to pay more money for it. Kayak shows you all the effort they go to to find you the flight results; they have tickers that go over the screen so you can see all the flights they are looking at and they constantly tell you they're searching for the best deal. You think, great, they're really trying to get me the best deal.
Similarly, consultancies put a lot of effort into their presentations demonstrating all the processes, rigour and work they had to do to get the answer. The more work you are showing to put into something, the more it looks like you deserve the higher price tag against it, and so can charge a higher price, and people buy it, as it's fair.
When purchasing a product really understand if the price is actually fair; even though it does a lot of things, it doesn't necessarily justify the higher price tag.
Dan Ariely's book goes into these issues in much more detail, and in a much more humorous way (he's a really funny guy). He also covers other areas around your personal finances and how to make better placed decisions. If you're interested, you can purchase it here on Amazon.
All photos courtesy of the fantastic unsplash.com