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Tell Me: Why Do People Manage Money So Badly?

Friday, April 20, 2012

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Tell Me: Why Do People Manage Money So Badly? | Faith Permeating Life

Looking for advice on managing money? Try these book recommendations.

I tend to consider myself a pretty non-judgmental person, and you all have told me that you get the same sense from this blog. I accept that different people have different values and ways of living that work best for them, and I'm not one to tell others that their approach to life is wrong if it is making them and the people around them happy.

However, I recently realized that there is one major area where I tend to judge other people: How they manage their money.

I say "manage" rather than "spend" because I have accepted the fact that people have different priorities than I do. If having a smartphone and buying a latte every morning make your life happy, then I won't begrudge you your decision to spend money on those things, even though I don't. You probably aren't saving up money to buy a bunch of land and adopt a bunch of kids, so of course we have different spending patterns and priorities. If you have the money to buy those things, who am I to tell you not to buy them?

It's when people have no savings accounts and go into massive credit card debt buying tons of non-essentials that my inner critic starts yelling, "WHAT IS WRONG WITH YOU???"

What I've learned from my past experience and my observations of others is that judgment is usually an outcropping of ignorance, i.e., a lack of understanding or experience. So for example, I think it's difficult to be good friends with a lot of gay people and still strongly hold the belief that all gay people are child molesters. Unless you just happen to be friends with a lot of child molesters generally... which would be really weird.

Anyway.

I feel like it's been drilled into me my entire life to having an emergency fund, not spend more than I bring in, plan for the future, etc. So that makes it extremely difficult for me to get inside the head of someone who consistently spends more than they bring in. The whole idea of doing that is so foreign to me.

I hear a lot of general things about "the culture" and the pressure to "keep up with the Joneses," but as someone who places little (probably too little) emphasis on what others think of me, this is difficult for me to conceptualize at an individual level. I get that there is this "cultural pressure" to live a certain way and own certain things, but I don't think people are that rational that they're thinking, "I don't have the money to afford this, but it is worth to me the debt that I will have to pay off on this purchase in order to have the social status that this purchase will gain me." So... what are people thinking?

This is a serious question. I want to understand the mentality here. I don't want to just write people off as complete idiots for putting themselves into debt buying what I consider to be luxury items.

Where I'm especially baffled/frustrated/judgmental is when people I know talk about how broke they are and complain about how they're having to make major life changes like getting a second job or moving back in with their parents, and yet they continue to post pictures all over Facebook of their new electronics, manicures, fancy dinners out, etc.

I ask myself a series of questions:
  • Do they consider these things essential items to their life?
  • Are they somehow unable to make the connection between spending money and not having enough money?
  • Are they trying to impress some people with their purchases, yet commiserate with other people about their lack of money, and I am somehow in the position to witness both?
  • Do they have an addiction to shopping?

So I ask you, my dear readers. Are you one of these people who goes or has gone into debt buying things you didn't really need? Or do you have some insight I don't have into people you know who do this?

Or are you as baffled as I am?

(On a related note, here's an amazing story of a couple who saved aggressively to get out of debt, build up an emergency fund, and pay for their wedding and honeymoon.)

29 comments:

  1. I struggle with this, but in a different way. I work with a lot of families who live on a fixed income (e.g., Medicare, disability, other kinds of public aid), some because they have to, but many because they choose not to work. They could make more money if they work, but in all honesty, some people are lazy and would rather live in poverty if it means they can get a check at the beginning of every month after not working. It's these families that I struggle to understand, because they complain, "I can't pay for my child's COURT-ORDERED counseling, not even $10 a week," but come to their weekly appointment carrying a full meal from McDonalds and a new pack of cigarettes. Or the family who doesn't have transportation, but when they save up a few hundred dollars so that they could buy a used van, they go and get new tattoos instead. What I (and my coworkers) have decided is that these people NEVER learned the value of saving, prioritizing spending, or thinking ahead - they just go day-to-day, and if their electricity gets turned off halfway through the month because they chose to go get a tattoo instead, so be it. It's pretty frustrating, but some people are just that way. Remember that we learned responsible money habits from our parents -- and these people likely learned their money habits from their parents. I'm seeing the children of these people grow up with a sense of entitlement - not entitlement to own the newest Ipod, but a sense of "Why should I have to work?"

    [Note: I want to be clear that I'm NOT talking about people who want to work but can't obtain a job, or who work but don't make enough money to support their families because they were forced to drop out of high school and now their employment options are limited to minimum-wage jobs, or single parents who rely on public aid because they NEED it to provide for their families.]

    Those are my thoughts. :)
    -Missy

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    1. Wow, that must be difficult to deal with from your perspective as a counselor trying to help their child. It's hard for me as someone constantly planning ahead to understand what it's like not to think long-term, but if someone's not thinking ahead then I can see why they would end up spending money on whatever seems like the best thing to spend it on at that moment.

      It's tempting for me to say, "Oh, this is a completely different situation than what I was talking about because I was thinking about, like, the people we went to high school with," but in a lot of ways the patterns are exactly the same. If people don't learn money management, they're going to do what they know from growing up, whether that's lapsing on the electricity bill or going into debt buying designer clothes. The way that thinking plays out just depend on what particular stigmas, or lack thereof, exist in their family or social circle.

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  2. It's actually a bunch of things. Usually they weren't taught good spending habits, or weren't really taught self-control growing up. They really, genuinely can't control themselves. Of course, once they are adults, they need to take responsibility and figure out how to fix their impulse problems, but that's difficult, and usually requires them to get in way over their head before they realize what's wrong.

    Plus, our society makes it soooooooo easy to do. Credit at the drop of a hat, finance everything under the sun, incentives to do so (rack up frequent flier miles at the mall!). Add in the fact that we have a distorted idea of what money *should* be able to buy us, that we don't realize what it is *actually* capable of buying us. We tend to think, "I'm making $60K a year, I should be able to buy a Mercedes!" when in reality, that's nowhere near enough money to support a Mercedes-type of lifestyle.

    I also think media plays a big part in this distortion. Look at shows like "Friends:" Rachel was a waitress, Phoebe was a sometimes-employed masseuse, Monica was a chef at mediocre restaurants (in the early episodes) but they ate out all the time, had fabulous clothes and hair, and lived in a roomy apartment in a cool neighborhood. I'm sorry, but those jobs are scrapping-by-to-live kind of jobs, but it's easy to be fooled into thinking otherwise.

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    1. You make a really, really good point about the whole idea of what money "should" be able to buy us. Especially when we have distorted models of the kind of lifestyle we should be able to afford. Even I fall prey to that sometimes when I think about how much Mike and I make combined -- I think, shoot, we could totally afford a bigger apartment (or whatever) on that kind of money! But when I look at our monthly budget and how much we're putting toward paying off his student loans, and how much we want to save for the future, then I realize all that money is already accounted for.

      I read Ramit Sethi's blog on personal finance, and one of the things he talks about is how people don't think through total costs, so they'll say, "Oh, the car payment on this car is X dollars, so I can afford it," without calculating in the cost of gas, insurance, parking, maintenance, etc. But you're right that there are many messages out there specifically to prevent people from thinking about that kind of thing -- "Sign and drive! it's so easy!"

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  3. I'm in a place right now in my life where, while I'm not living paycheck to paycheck, I don't have anything in savings. This is for a variety of factors including choosing to live on my own instead of living with a roommate, taking a job that has low pay but I think is important, massive student loan debt, and most currently a really bad tax situation. What savings I did manage have been wiped out completely.

    I meet all my bills, and live comfortably, but not extravagantly. I have what I need and not much more. Very rarely will I buy something "just because." I do what I can to stash money away for a down payment on a car, which is going to have to happen soon, or for that proverbial rainy day, but it's hard. There are times when I find myself saying "whats the point?" It is such an uphill battle, that ten dollars for a pizza instead of cooking at home doesn't seem like the death blow.

    Will I go into a lot of debt over getting a new car? Yes. It is worth it to me? Yes. Sure, I could get a used car, but I feel more comfortable with a new car. My parents always had new cars. I know that it is under manufacturer warranty. I understand that process, my dad can walk me through that with confidence. I am, presumably, going to get more mileage out of a new car than I am out of a used. I understand that the car will depreciate as soon as I drive it off the lot, but it seems worth it to me. Especially when I factor in a family discount, I won't be spending much more than I would on a used. That extra couple thousand seems very much justified to me.

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    1. It sounds like you've put a lot of thought into your financial decisions and into how to cut costs so you can have the things that are important to you (the job you want, living alone). I can definitely relate to having those moments where I'm like, "Ugh, let's just go out to eat one extra time this month, it will be fine," but keeping my focus on why we have a spending plan -- what we're saving for -- helps me to stick to it.

      I can't say from a personal point of view that I understand wanting to buy a new car, but I can understand doing things the way they were done in your family growing up. Cars in my family are almost always bought used, and my dad is an expert at price negotiation because he can leverage the fact that he's paying in full. If we decide to replace Mike's car when it dies (which is debatable), I'm sure we will find a used car, negotiate on the price, and pay it in full, because that's the way I learned to do it.

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  4. I used to be HORRIBLE at managing my money. I'm still not the best at it, but compared to where I was a year or two ago, I'm MUCH MUCH better. One of the pastors I work with sat down with me once to help me sort out my budget, and then again when I got a car, and Mint.com has helped me A TON. I still have a big credit card bill I'm paying off, and student loans, and my car, but I'm making it work. Slowly but surely my savings account is growing, and I'm really keeping track of what I spend. I did have to buy a laptop at the last minute recently and had to put it on a credit card (POOP), and I also got an ipad. However, the computer credit card bill I'm making sure will be paid off in 6 months (or sooner) and I got the iPad because I got a refund check and it was used so it was cheep. :)

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    1. Hooray for Mint.com! For all its bugs, I still love it because it's so freakin' easy to use. That's great that you were able to get help sorting out your budget. I think I would honestly enjoy helping someone get their finances organized because I'm weird like that, but no one ever asks for my help -- so I just provide unsolicited advice on my blog here :)

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  5. I never had any credit card debt. I have student loans which is now down to $100 a month for another 1.5 yrs. I'll nurse the good debt. I had a car loan which I paid off in less than 2 yrs.

    I don't spend more than I take in and always save/find bargains. One thing that works against me is retirement. I grew up in an Asian household where it's pounded into your brain to take care of your parents. I'm not remotely educated how to best save for retirement.

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    1. Saving for retirement as early as possible is one of those things that was thankfully pounded into me, so I signed up for my 403(b) at work as soon as I started and have 10% of my salary automatically going there. If you want some straightforward information about retirement savings, probably the best source I've found is Money Girl -- I listen to her podcasts, but you can also just read the transcripts online. Here's all the episodes tagged with "retirement." I also got a lot of good information from the book life after college. explained.

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  6. I wouldn't say I'm great at managing money- I do have credit card debt, although I always pay significantly more than the minimum every month- but I have a decent amount of money in savings considering how little money I make and I don't buy a lot of unnecessary things. (I hardly ever even buy clothes!) But I am very lucky that my parents are great financial role models. I was surprised when I found out how much money they made- it turns out that they've been living way below their means all these years. Now they're in their mid-fifties and in great shape for retirement.

    Anyway, my point is that not everyone has that. It's a vicious cycle, I think- if you don't have a good model of how to manage your finances and are never taught how to, you probably won't be very good at it yourself.

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    1. That's great that your parents were good financial role models for you. I do think that can make a big difference, particularly as most schools don't teach money management, so it's learned (or not learned) primarily at home. Ramit Sethi talks about a lot about "invisible scripts," notions about life priorities that we often get from our families. I think even the notion that money management is an important skill to learn is a script that we either pick up or don't from our families.

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  7. This is one of the things that I find *fascinating* (I can be totally voyeuristic when it comes to those money makeover shows).

    Though I've been lucky when it comes to being able to manage money well, I've been one step removed from this a few times, and have seen a few key issues:

    - poor impulse control, which has been linked to medical conditions such as fetal alcohol syndrome. Some people really just don't make the connection between cause and effect as readily as the rest of us do.

    - not believing that saving up will pay off in the long run. Sometimes this is born out by experience - if any time you save up money, your friends and family treat you like a money tree, and you're not willing / not able to enforce boundaries with them, then the idea of financial stability is very complicated. Even if there aren't those practical impediments, if you grew up without any models of people *you knew* benefitting from delayed gratification, you may dismiss it as being a myth. (Like the apartments and wardrobes on Friends, as someone else mentioned - if you've *never* seen it happen, but you have seen the 'money tree' thing happen to people you know, you're not likely to believe that saving pays off, even if it might for you.)

    - mental health issues. A friend who's bipolar got into some LARGE credit-card debt before she was diagnosed, and it can still be a challenge even after you know what the problem is.

    - big payoffs from shopping now, little consequence to having the power cut off later. If you REALLY enjoy shopping, and your social circle doesn't make negative judgments about being in debt, then it's a different cost/benefit calculation than it is for the 'typical' person. Those of us who don't get an inherent high from shopping, and who could lose a house/car/retirement that we value, or who would face disapproval from our peers if we went into debt have different conditions.

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    1. I recently read the book Stumbling on Happiness, which talks in part about how difficult it is for our brains to conceptualize our future as being significantly different from our present. Even though I am saving for the future, I'm really doing it on faith, on the belief that saving now is going to allow me to achieve my goals sometime in the future, because I have no way of "feeling" what it's going to be like to get there. I can see how that same idea could be a stumbling block for two of the reasons you mentioned -- not being able to feel the future benefits of saving, and not being able to feel the negative consequences of going into debt. And if you haven't seen a lot of examples of people saving up money and having positive consequences -- and you don't have a social stigma for things like going into debt or having your power turned off -- then I can definitely see why it would be difficult to get yourself in the mindset that saving is an important long-term strategy.

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  8. I have always been good with money, so it baffles me just as much as you. I get that unforeseen expenses come up - medical bills, car accidents, whatever - but that's a totally different thing. What I don't get are people who truly, intentionally spend outside their means. I know people who spend a ton of money on designer clothes and purses and shoes, then complain that they don't have enough money for food. Well, um... I could've seen that coming.

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    1. Yeah, that is what confuses me most, for sure -- the people who are vocal about their lack of money, yet continue to spend money on expensive non-essentials. The only thing I can think is that they're so used to a particular lifestyle that it would require a complete mental shift for them to start living differently, and most people don't want to admit that they've reached that point. There's also the case where people acknowledge there's a problem -- like, "Oh, I was so stupid to buy that purse, now I don't have enough money left" -- but they don't know how to stop themselves buying it in the moment, or they fool themselves that it won't cause a problem later on by rationalizing the purchase at the time they make it.

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  9. I'm reasonably ok at not going in to debt - I have a credit card that I pay off nearly as soon as I use it - but not so great at actually saving much money. I do mean to save a lot more than I do, but I usually forget all those little things that add up. I've thought about doing budgets and keeping track of my spending, but (this is going to sound terrible) I find it pretty boring. I guess because I'm not in debt and I do have a small bit of money saved, I don't feel a lot of urgency right now. It probably helps to have a goal like yours to focus on, which my husband and I don't really have right now because our plans for next year are a bit vague (not sure if I'll be getting a job in another country).

    As for some other people (and I think sometimes this applies to myself), I think spending on shiny things and clothes can be a distraction, and a (not necessarily good) way to lift a bored or slightly depressed mood. It's when it becomes a habit instead of dealing with the causes of the boredom or depression that is a big issue - especially if you start to become depressed because you have no money, and spend as a way to avoid thinking about it!

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    1. I highly recommend Mint.com if you think budgeting is boring. It automatically compiles all your spending from all of your accounts so you don't have to input anything except cash purchases (if you want to). Then if you decide to set up a budget / spending plan, you just have to do it once and it rolls over every month, and Mint automatically categorizes your purchases and fits them into your budget. It's ridiculously easy.

      You're definitely right that some people shop as a means of stress relief, and that it can cause a vicious cycle if the thing you're stressing about is not having enough money!

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  10. I think there's another way to look at "bad" money management that you're missing if you want to be non-judgmental, and that is that "bad" money managers are living out a set of values that us "good" money managers believe we have not yet earned the right to live out. We believe we have to first earn enough to learn that money isn't everything, and then we can pursue enlightenment, while "bad" money managers already know money isn't everything and so skip right to the good part. Here are the values I see in action:

    * Independence is an illusion; we are actually interdependent. From this perspective, personal savings for personal retirement is not only misguided but deeply SELFISH, particularly when people around you are suffering. Better for the soul to go into personal debt helping your friends and family; they will help you later when you need it.

    * Make hay while the sun shines. Easter candy is on sale? Better stock up! Never know when you might need candy. What's that, you say we never need candy? Never mind, there's plenty!

    * Eat, drink, and be merry, for tomorrow we die. A lot of people are in much closer touch with their mortality than those of us who have faith in the future. Heck, have you followed the news lately? If you might die tomorrow -- or we all might -- why not party it up today?

    * Work hard, play hard. Most subsistence jobs are much harder work than white collar jobs. People come home tired and with a sense that they are entitled to relax. Extravagances like big-screen TVs give them the impression that they are rewarding themselves for a job well done, which is the only thing that makes the job worthwhile.

    * Build your house on the rock, not on the sand. For those who have been repeatedly robbed, either directly or through white-collar machinations, the choice between putting money into a big bank where faceless bureaucrats will lend it out to people you don't know and promise to pay you back later -- or getting a tattoo that can never be taken away -- is an easy choice. Cars get stolen. Houses get foreclosed upon. Taxes take away a frighteningly unpredictable portion of your income. Tattoos are a powerful *symbol* of sound investment, even though that investment can't be monetized.

    * Consider the lilies of the field and the birds of the air. If they can get a living without working, and you can, too, why should you stress about working? Jesus said it.

    * Fake it 'til you make it. OK, not exactly a value, but good advice in a lot of situations. You can't get a white-collar job without a nice suit of clothes, for example. When people spend money they don't have for status symbols, you can be sure they are hoping to break into some sort of elite clique, even if we don't see or understand it.

    That's all I got for now.

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    1. Interesting thoughts! I'm intrigued by the idea that good and bad money management are relative to your personal values; it's an extension of what I already believe about how good and bad spending decisions are relative to own your priorities. Even if I don't agree with someone else's values (particularly if they lead to decisions that could be detrimental to the well-being of their children), I can respect the fact that other people have different values than I do and make decisions accordingly. That's easier for me to understand than someone simply acting in a way that flies in the face of what I believe to be "common sense."

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  11. Sorry, I left one off my list above:

    * Don't sweat the small stuff, and it's all small stuff. There is an almost Buddhist attitude of emotional detachment from outcomes that, while it avoids the "suffering" of attachment to those outcomes, also leads to decisions such as routinely buying $4 beverages, ruining the non-stick coating on pans, washing red items with white ones, and failing to do simple maintenance on appliances and cars so that they have to be replaced outright at a much higher cost. It's easy for those of us who are emotionally attached to outcomes (and to our stuff) to call this attitude careless or thoughtless, yet what is stuff or money compared to our emotional serenity and well-being?

    Thank you, Jessica, for your original post, and thanks to all the other commenters. It's a very good conversation!

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    1. Ah, good addition. This is one I struggle with because I feel it goes hand-in-hand with the idea of "you can't take it with you." I want to be a good steward of my money and take care of my things so they last... but I also don't want to turn into a penny-pincher or hoarder to the extent that I'm placing my worth in my money or my things. I touched on this previously in my post You Can't Get an A in Saving Money. Striking a balance between being responsible, sensible, frugal, etc., and having a "carpe diem, life is short, nothing is guaranteed" attitude is something I continue to work on.

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  12. It's interesting because there was a point in my life where I would spend my entire paycheck on makeup and clothing even though I had bills to pay. And at that point my husband was worried about marrying me because of how easily I would spend cash. Then we worked on it together and it all changed. Anyways for me it was a happiness thing. Instead of going to the root of whatever was making me unhappy I would shop. Then of course because I was shopping to quickly fix how I felt I would constantly feel shoppers guilt.

    Now a days I find it difficult to even get a coffee at starbucks. I tend to save spending for whenever I get birthday money or something like that. And even then I would rather find a way to save then pay full price. Half the time I will sit and figure out a way to make what I want instead of just spending cash. I think seeing bills rack up just kinda made me realize that it was time to grow up.

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    1. That's great that you figured out what was causing you to spend too much money, and that you've been able to save up a lot more now!

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  13. I came from the non-profit world where I paid all my bills, saved a bit, didn't have a ton of extra funds but was generally fine into a random corporate detour. My salary increased more than I imagined it would, and since it is a temporary stint, I made the decision to stick to my non-profit budget and take the opportunity to pay off (some) student loans and save some more. I am completely with you in not understanding people who have the means and can't save or go into debt for superficial things. (Ever see that bumper sticker "The one with the most toys wins."? Actually, no, but that's just how I feel.)

    Granted, I choose to live fairly simply, but one of my co-workers remarked a while back that she hasn't been able to save anything whatsoever. I was utterly shocked! Having saved and knowing people who were able to save at least a little bit on a much lower salary, I could not believe someone could piss away money like that. There--there's my judgment!

    I'm generally understanding of people who choose to live differently than I, but it's the folks on the extreme ends of the spectrum who I have much difficulty accepting.

    For me, the other piece of it is that I lived in Central America for a year, where I really got to see how it's absolutely not stuff that makes you happy. (I admire people who realized this without living in countries whose people don't have the means to care about material goods.) My roommates and I went there each with multiple suitcases for a year. I'll never forget the man we knew who got on a plane to move to the U.S. permanently, and all he took with him was one small suitcase. He may not have owned much more, and I doubt he noticed one way or the other. I still think about that experience in considering what I need and what I don't.

    With that said, it IS really challenging to keep things simple in US culture. There's a lot of pressure, and I guess what makes a difference is whether or not you buy into it.

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    1. I have heard the same sort of thing from people who have visited very poor countries, that it's difficult for them to come back to the consumer culture of the U.S. On the other hand, you make a good point about how much more difficult it is to live simply here. If you were in a middle to upper class area and decided to start living like a poor villager while in the U.S., I think you would likely have a hard time being taken seriously by your friends and coworkers. But if you're living where everyone around you is living that way, it's completely different.

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  14. My first thought when I read the title was 'because there are fabulous scented candles out there!! And shoes! AND BOOKS!!!'
    And because non-essential are just sometimes do damn essential :)

    Sorry. Flippant I know ;)

    Eva

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    1. :) What's interesting is that I've found that my desire to shop has changed in the same way my desire to eat sweets has changed. When I was growing up I would just munch on candy that was sitting out all the time, but then I went to college and didn't want to spend money on soda or candy so I got out of the habit of eating and drinking sugary things, and now my mom will send us home with stuff and it won't even get eaten. In the same way, I used to spend a lot of my money on books, and now that I'm trying to weed out and get rid of books I don't want, and we have an amazing library, it seems totally strange to me to go buy a book unless it's something I've already read and now I want to keep as a reference guide for a long time. So what seems essential can definitely change over time.

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    2. Yes, that's true. While i do like spending money, it's not just gratituous spending- it's targetted these days. But books and candles do feature highly!

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