Compassionate Living Psychology

Topics like “how much do you need to retire comfortably?” and “how much do you need to earn to be rich?” are featured in the news from time to time. However much we might like to position ourselves as non-materialistic and soul-seeking, there is no denying that we need money to survive and to live a life stable enough to support our “higher-level” pursuit.

Cost of living is high and some of us are really struggling to get by. Obviously, they need practical help that I, as a psychologist, may not be able to offer. However, I have also seen high achieving clients (who are objectively well-off) pushing themselves so hard that they lose passion in work and suffer panic attacks at work but stay in the stressful job role because “they worry about the financial implications” if they take the risk of career change. I’ve also seen clients complaining that they find their spouses’ excessive frugality suffocating and this breeds grudge and resentment in the family.

Our financial well-being is more than a number in the bank. The assets we own represent our objective financial condition but psychologists like to focus on the subjective aspects like what do we think and how do we feel about our financial condition in defining financial well-being.

For example, we have a general perception whether we have sufficient money to support our day to day living and desires; we may also compare ourselves to our peers as we judge how we are doing financially; our subjective financial well-being could even be affected by our sense of efficacy regarding how capable we are in managing our finance.

However, perhaps the most helpful in explaining why sometimes the sense of having some money at present may not do much to enhance subjective financial well-being is that we tend to think about our financial status with a future-based assessment in mind. In other words, we might make a judgement regarding our financial well-being based on the financial position we expect ourselves to be in 5 or 10 years later.

As a result, self-perception of financial well-being could be coloured by individual characteristics like risk aversion and uncertainty intolerance. Some of us are simply more likely to picture negative events, rather than positive ones, happening in the future. It is also not uncommon that for some people, even when they acknowledge both positive and negative things could happen in the future, they tend to selectively attend to the negative projections and disregard the positive ones. It is what we think may happen that matters so imagined financial challenges can already affect our financial well-being.

Thinking about future finance is all the more challenging for people who have a low self-efficacy in managing finance. They may be concerned about inflation and depreciation, concepts that we come across frequently, but feel like they are unable to counter the impacts.

Socialization experience also plays a significant part in shaping our financial well-being. People coming from challenging background may, understandably, be wearier of potential hardship in the future and find it difficult to enjoy the monetary reward of their hard work even if they have attained an objectively financially stable life in the presence.

Living within our means is a reasonable and responsible thing to do. However, when we practice the principle to an extreme and become continuously anxious, feel guilty even for reasonable expenses, blame ourselves for the occasional self-pampering purchase, or sacrifice normal social activities not because we could not afford it, but because we think that we should not spend the money, it can start to affect our social lives and mental well-being. Although it is easy to attribute these money-related behaviors to the person’s stinginess or greediness, a lot of times it is about fears and the sense of insecurity about future.

1. Same as approaching other anxiety issues, try not to blame (yourself or the person close to you) for the excessive frugality.
2. Acknowledge the sense of threat lying in the future you may be experiencing as you think about your financial well-being. Validate that the extreme care with money is an attempt to protect your life stability.
3. Reflect on the impact and unintended consequences of anxiety-driven frugalness.
4. Identify objective savings goal, for example, rainy day savings for 6-months expense, savings for annual travel plan, savings for family planning etc.
5. Make an objective review of your financial health. Summarize the regular expenses on rent or mortgage, utilities, and groceries etc. Calculate how much it costs if you attend social activities twice a month and arrange something small for personal indulgence (e.g. spending on hobby, clothing, accessories etc.) once a month. Work out how much you can save each month and each year.
6. Compare the savings rate in “5” to the savings goal in “4”. If, unfortunately, the calculation indicates that you are not meeting the savings goals, work out if reducing the spending on social activities to once a month or personal indulgence to once in 3 months (or any other appropriate frequency) could help. Alternatively, explore if you can revise the savings goal, for example, from “annual travel plan” to “travel plan every two years.”
7. If the calculation indicates that you are on the right track towards the savings goals, try to come up with a few statements to remind ourselves that we are doing fine the next time when you feel threatened by the “unknown and imagined financial disaster in the future” and become exceptionally unwilling to spend money to an extreme that affect your daily and social lives.

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