After answering yesterday’s question, think back to your decision. Did you spend the money based on a set system of beliefs that you hold? Or did you let loose, live free, and blow through the cash on frivolous purchases? Do you regret any of your decisions? What would you change? After reflecting, how would you spend the money NOW?
That uncomfortable feeling you may be experiencing in your anterior cingulate cortex (the bright, shiny spot in the brain up above) is what is known as cognitive dissonance. A highly influential theory in psychology proposed by Leon Festinger back in the 1950’s, cognitive dissonance describes that feeling we experience when our actions do not line up with our beliefs, ideals, and goals, prompting us to seek resolution by adapting our attitudes to be more congruent with our actions.
Every single decision we make throughout our lives has the power to create this feeling of dissonance. We get caught up emotionally in our decisions, financial or otherwise, that has the potential to bring about later regret. I know I’ve been guilty of rationalizing purchasing decisions without forward thinking, resulting in not only cognitive dissonance of the initial decision, but additional regret due to the impediment of our short-term and long-term financial goals. The point is to learn from prior experiences, adapt our behaviors accordingly, and work on changing our actions that go against our core beliefs, whereby resulting in this feeling.
From a personal standpoint, I believe that how one answers this question is largely based on a couple key factors: 1) where he/she may be from a financial standpoint and 2) where he/she may fall on the continuum of maturity levels. Someone already debt free and financially independent, who doesn’t theoretically “need” the money, has the true freedom to spend the money on anything they choose. That freedom is what I desire and what continuously drives me forward with our goals.
Even just a few short years ago, if I were given this scenario while in college, I would’ve paid off any credit card debt we had at the time and maybe saved a few thousand bucks. But the remainder of the cash? I would have quite likely blown it on several vacations with my wife over summer break and nickle-and-dimed the rest on who-knows-what. Thankfully, my maturity level has dramatically improved.
Here’s to making smarter financial decisions and avoiding cognitive dissonance!
P.S. – in case you were wondering what I’d do with $100,000 in cash…here it is:
- Pay off our CC debt and my wife’s student loans (about $35,000,)
- Add $10,000 to our emergency fund
- Allot $5,000 to whatever my wife and I wanted to do with it
- Deposit the remaining $50,000 in a Vanguard account, investing $10,000 in their total bond fund and the remaining $40,000 in the total market fund
In addition to answering the proposed questions at the top of this post, I would also love to hear what strategies you utilize, when it comes to purchase decisions (or any decision in your life,) to minimize or eliminate the possibility of experiencing cognitive dissonance. Let me know in the comments below; maybe I can incorporate your tips into my life to help me avoid experiencing that feeling ever again, as well. 🙂
Thanks for reading and, if you you enjoy what you’re reading and haven’t already, please follow along with my family as we make our way toward debt freedom, financial independence, and early retirement. We would love to have you along for our journey and having the privilege of hearing from and learning from you as we move forward. Have a wonderful day!