Vincent Chan: Upgrade Your Money and Life
I finally won the big fight
Welcome to reThinkable – my weekly newsletter where I share actionable insights to build a wealthy healthy life.
Here’s what we’re covering:
💸 Gateway Spending
💥 The Diderot Effect
🎯 The 3-Step AIM Framework
Estimated read time: 3 minutes and 57 seconds
💸 Gateway Spending
I recently purchased a stainless steel All-Clad pan. It was beautiful and gleamed on my kitchen countertop. But then something unexpected happened…
The old mugs looked out of place next to it… so I bought new mugs. Then, a matching All-Clad pot, followed by a new set of plates. Before I knew it, my pan became a gateway to buy more things, leading to a spiral of spending.
The problem is, there are countless other gateway purchases that you’re probably guilty of too:
You buy an iPhone and now you feel compelled to buy an Apple-branded phone case, AirPods Pro, and an Apple Watch
You renovate your kitchen and now you want to upgrade the living room, bathroom, and bedrooms
You buy a stunning new outfit and now you have to get nice shoes and jewelry to match
But why do we fall for this spending trap? And more importantly, how can we get ourselves out of it and back on the right path with my three-step AIM framework?
💥 The Diderot Effect
This gateway spending trap is known as The Diderot Effect. Basically, the Diderot Effect is like a ripple in a pond. You throw a stone— your initial purchase — and the ripples expand, representing subsequent purchases.
It’s named after the French philosopher Denis Diderot who, one day, received a luxurious scarlet gown as a gift. Little did he know, that gift would eventually plunge him into debt.
The problem was, he loved his fancy gown so much that all his other possessions felt unworthy and “commonplace.” Naturally, he began to replace his things – one by one.
He bought:
Fancy artwork by Poussin, Rubens, and Vernet
A leather chair and elegant desk
Lavish sculptures and more
This cycle continued until he was surrounded by new things that, while beautiful, were neither necessary nor affordable.
Psychologically, the Diderot Effect is linked to our desire for consistency and identity. When we buy something new, we want our surroundings to match this new aspect of our identity.
The problem is, what starts as a minor purchase can lead to a chain reaction of unexpected spending.
🎯 The 3-Step AIM Framework
Last week, I felt myself falling for The Diderot Effect again.
The first sign was I felt the urge to replace something— I initially bought an Air fryer because it makes cooking faster and easier but then I noticed my microwave was a bit outdated…
Fortunately, I’ve developed a useful set of principles for managing these impulses and breaking free from them.
I follow my three-step framework called AIM…
Step 1: Assess
Just like how a doctor needs to diagnose you before prescribing medicine, you need to assess your situation before improving your finances.
Think of every purchase as being part of an interconnected web. We’re typically growing the web without realizing it.
The first step is to acknowledge the web’s trigger:
Spending Tracker: Document not only your purchases but also the motivations behind them. This will reveal the interconnections of your spending habits.
Follow The Web: Identify how one purchase often leads to another, creating a chain reaction of spending.
Step 2: Intent
The next step to avoiding The Diderot Effect is to change direction. Transition from impulsive buying to a deliberate decision-making process.
Before you make a subsequent purchase, have an intention:
The Alignment Check: For each tempting item, pause and assess if it aligns with your goals and genuinely adds value to your life.
The 48-Hour Rule: Implement a waiting period before making a purchase to allow for thoughtful consideration
As you change direction, focus on your life story. As dramatic as it sounds, your spending should narrate your life’s story, differentiating between what enriches your journey and what merely clutters it.
Step 3: Maintenance
The last step to getting out of the trap is to reflect. If you never reflect on what you’ve done, you’ll never how effective it was. Sustainable change is a natural byproduct of self-reflection.
Regular Reflection: review your Spending Tracker to see your progress and areas for improvement.
Celebrate Small Victories: Celebrate your victories in resisting unnecessary spending and use any slip-ups as learning experiences.
If you’re having a stressful week and you just want to buy things to de-stress, recognize this as a stress response and opting for healthier coping methods is a significant step.
Avoid the tendency to think that the reflection has to be profound. Even a small reflection or acknowledgement is beneficial.
Mastering personal finance is a long, long game that all comes down to allowing small things compound for the long run. With this in mind, simply staying in the game is the most important thing.
The Diderot Effect will happen to you again.
But when it does, slow down and allow yourself to work through it:
1. Assess
2. Intent
3. Maintenance
Give it a shot and let me know what you think.