Think You Control Your Own Spending? Think Again!

Owen Winkelmolen

Advice-only financial planner, CFP, and founder of

Work With Owen

Habits drive a lot of what we do. Habits are subconscious and they form in weird ways. Did you know that a lot of our spending is driven by past decisions?

We all have this weird desire for coherence. We want things to be consistent. We judge current spending decisions based on past spending decisions. We want to keep things consistent so we make decisions based on what we did in the past (or what we’ve seen other people do).

We’d like to think we’re in control of our spending but that’s not really the case. We’re influenced by things we purchased in the past, or things friends have purchase, or co-workers, or even our family. We’re even influenced by random people we have no relationship with like the people in advertisements.

Arbitrary coherence is the idea that the first decision we make, or the first piece of information we receive regarding a decision, is arbitrary, we don’t have any reference point or anchor to evaluate this new piece of information so it’s very arbitrary. But after we get that initial piece of information we start to use it as a reference point, and subsequent decisions are made using it as a reference.

TVs are a good example. If you’ve never seen and ad for a TV who’s to say exactly what a 50” TV is worth, or a 40” TV or 60” TV for that matter.  But once you’re told that 50” TV is worth $500 then you know the 40” TV should be worth less, maybe $400, and the 60” TV should be worth more, maybe $600. At first the price for the 50” TV was arbitrary, you had no reference point, but after it becomes an anchor and in your mind the prices for the 40” and 60” TVs need to be coherent.

You also carry this information forward into the future. If you purchase another TV five or ten years in the future you’ll use this information again to evaluate your decision. Even if TV’s are completely different ten years in the future you’re probably not going to be willing to pay more than $500 because you want to remain consistent with your past decisions.

This happens to all of us all the time and we don’t even notice. We believe that we’re in control of our own spending but that’s not really the case.

Here are a few examples of arbitrary coherence you may experience.



Having A Spendthrift Friend

Friends have a big impact your spending decisions, what they buy, where they eat, how often they go on vacation.

Having a spendthrift friend will make sticking to a budget way more difficult. Thanks to arbitrary coherence your spendthrift friend will have a big impact on what YOU consider to be a normal purchase.

Spending $500 at the mall might seem normal. Dropping $300 on a bar night might seem normal. Taking expensive vacations 2-3 times per year might seem normal.

Spending decisions your friends make will become reference points for your own spending decisions. Having a spendthrift friend makes it hard to understand what ‘normal’ spending looks like and you’re going to see that reflected on your credit card bill.



Being Influenced By Coworkers

We spend a lot of time with our co-workers (whether we like it or not!) and this has a big impact on our spending.

When you start your first real job you have no reference for the existing cultures and routines. Every office has its own culture and this has a big impact on how you make decisions, fancy cars, drinks after work, certain style of clothes, buying lunch every day.

When I started my first office job I got into the habit of buying lunch every day. Most people did it, so it felt normal. The first day I bought lunch the decision was arbitrary, I didn’t have a reference point, so the office culture became my reference point. From that day forward my decision to buy lunch was coherent with my previous decision. It felt normal.

This had a huge impact on my finances. Buying a $10 lunch every day was costing me about $2,500 per year (not to mention the weight I gained!). This made it hard for me to hit my financial goals.

It took a lot of effort for me to change my habit of buying lunch everyday but it ended up saving me a ton of money.



Buying Something On Sale

When something goes on sale it’s not just about clearing out existing inventory, it’s about creating new spending habits. It’s about getting you to visit new stores or try new products.

Sales are used to help break that initial barrier.

You’ve probably heard that it’s easier to keep an existing customer than get a new one? Businesses know that once you make the first purchase it becomes much easier to sell you something again in the future. Sales help break that barrier and create a new reference point. This makes it more likely that you’ll make a repeat purchase in the future.

This is a good reason to be cautious around sales (like Prime Day for example!). Sales are just a way for businesses to tweak your spending habits and get you to purchase more of their product in the future.



Use Arbitrary Coherence To Your Advantage

The neat thing about arbitrary coherence is that it can be used to your advantage. Reading personal finance blogs is a great way to give yourself a new personal finance reference points. Reading about saving, investing, budgets etc is going to give you new reference point for what ‘normal’ is. When you see people saving 20%, 30% or 40%+ of their income then this becomes your new anchor. It impacts the way you think and evaluate decisions and all of a sudden you’re making decisions coherent with a 30% savings rate. This is the power of arbitrary coherence. If you use it to your advantage then saving can become easy.

Owen Winkelmolen

Advice-only financial planner, CFP, and founder of

Work With Owen


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