Understand the psychology behind buyer's remorse and these five steps to overcoming it
The year was 2003, and I had just bought a $110,000 home. I had bought several rental properties before, always putting in the time to find a fair value for the investment and negotiating a reasonable price.
This time was different. The house had a jacuzzi in the finished basement…how could I say no?
It wasn't long after signing the closing documents that I felt an overwhelming sense of regret. I was pretty sure I overpaid, and now I would have to live with the decision for a few decades.
I wasn't alone in my regret. A survey by Trulia finds that 44% of homeowners feel buyer's remorse after purchasing their home. One of every three home buyers says they wish they had bought a bigger house, while 15% wish they had more information before making the decision.
Why do people feel that way after a big purchase? Is it just our minds playing tricks on us? Is there a way to avoid buyer's remorse the next time you make an important decision?
What is Buyer's Remorse?
Buyer's remorse is that sense of regret you get after making a big decision. You don't even have to buy something, but it's most common after expensive purchases like a house or car.
You know what I'm talking about, right? You went to the dealership to look around, but then you heard about the special holiday sale. The dealer threw in some extras, and you were excited to drive off the lot with your new car.
Talking to your friends later, though, you aren't quite so excited. The payments and insurance increase will mean skimping for a while. You look online at used car prices and regret splurging on the new model.
You might even wonder if you can take the car back and pretend it never happened.
Is it guilt? Is it that you think the salesperson influenced you or that you made the wrong choice?
Buyer's Remorse Psychology
Most of the time, when someone says, “It's all in your head,” they aren't speaking literally. However, in the case of buyer's remorse, it just might be true. Despite feeling awful about your purchase, some profound things are happening in the grey matter.
I will dig deep into my psych classes here, so feel free to propose your ideas. There are a couple of contributing factors to the psychology behind buyer's remorse.
The first is the idea of cognitive dissonance. We all have a perception of ourselves and the beliefs and values we hold dear. When you do something that contradicts your perception of yourself, it causes you to stress subconsciously. You feel regret and even sadness because your action doesn't align with your more profound beliefs.
You disappointed yourself. That's cognitive dissonance.
That's why more significant purchases cause more buyer's remorse because the higher level of commitment contradicts more with the perception. You can buy a cup of coffee and still think of yourself as a frugal spender. But, it gets harder to think of yourself as responsible with money when you just bought that expensive new sports car.
Another theory behind the psychology of buyer's remorse comes from Art Markman, Ph.D. at the University of Texas. Markman says that regret is the function of two motivational systems that guide us.
The avoidance system helps deal with negative things like debt, things you want to avoid. In addition, emotions like regret and guilt are survival instincts that keep us from doing activities that might cause emotional or physical harm.
The other motivational system, the approach system, deals with things you want and base desires on. So much of the time, that approach system is in control. You see all the things you want and have a pocket full of plastic cash.
After you've satisfied that desire, the approach motivation stops driving you. The avoidance system is now in control, and you must consider all the consequences of your purchase.
The lamest part about buyer's remorse is that it can strike even after good decisions. So while buyer's remorse can help to avoid some bad financial decisions in the future, that regret can be overwhelming even when you got a good deal.
Overcoming Car Buyer's Remorse
Buyer's remorse after buying a car is so common that it deserves its own section. I don't think I've met a single person that did not feel at least a little regret after buying a new car…and sometimes even after purchasing a practical used car.
Why does buyer's remorse hit us so often with car purchases, and how can you use this to make better decisions?
There are two reasons we regret our cars more than any other purchase. First, these are some of the most expensive financial decisions we make. Even if that $6 mocha-coca-grande latte was a poor decision, it's hard to get worked up over something that costs so little.
Signing your name to a $20,000+ contract for a new car is entirely different. A study by Harvard Business found a direct relationship between the size of purchase and strength of buyer's remorse…even when you thought it was a ‘good deal.'
The other reason we get buyer's remorse for cars is the drastic and opposing forces we face in car buying.
On the one hand, we often hear about being responsible with our money regarding car buying and how much you can afford. But, on the other hand, we prize fuel efficiency and the ‘good deal' on the car that gets us to work daily.
Then there's the other set of forces; the marketing that drives us to prize speed, power, and status in a car purchase. For some guys (yep, I fell for this one when I was younger), their car is an extension of their manhood. So our cars are the most noticeable way to show off success.
Dealers are all too happy to help that second force win out while we're buying a car. But unfortunately, that second force is quick to reassert itself after the purchase.
Smart Spending and Investing Means No Regrets
One of the best ways to buy what you want and still not suffer buyer's remorse is by knowing that you're also taking care of your financial future.
This means shifting some of your spending to saving and investing before you buy that new Louis Vuitton handbag. Then, as you watch your nest egg grow, you'll worry less about frivolous spending because you know you're also doing the right thing with your money.
How to Overcome Buyer's Remorse
Buyer's remorse is hard-wired into our brains, so you might never be able to avoid it entirely. However, you can do things to make better financial decisions and lessen the regret you feel after big purchases.
These five steps will help you avoid buyer's remorse or limit it after purchase. One of the best things you can do is focus on the things that bring the biggest regret.
1) Use cash instead of credit. This keeps you on a budget and helps avoid running up the credit card bill. Don't think that spending all the money in your wallet won't cause a little buyer's remorse, but it will help avoid massive purchases.
2) Take a day to think about your big purchases. Taking a cooling-off day to think about big purchases is my favorite. Coming close to making the decision, your brain will react similarly to if you had made the purchase. That avoidance system will take over and present you with all the ideas why you don't necessarily need a diamond-encrusted, heated ice cream scoop.
3) Use the cooling-off rule to get more information and compare options. If you didn't put much thought into comparison shopping before, that cooling-off day is an excellent second chance to compare your other options.
4) Use a list when you're shopping. Have you ever wondered why grocery stores put all that candy right next to the checkout? Nobody goes grocery shopping for Snickers and gum, but somehow they end up coming home with both. Write out a list of what you need and stick to it.
For big decisions like buying a house or a car, make a list of the must-have features you want before looking. Then, agree on a budget, and don't get drawn into paying thousands more for features you didn't even know you wanted.
5) Follow a budget when you go shopping. Even if you're using credit cards to do your shopping, you can still stick to a budget to control your spending.
Buyer's Remorse Happens in all Expensive Purchases
We all feel buyer's remorse. It's natural, and you'll probably not fully overcome it. However, understanding what it is and why we regret those big decisions will help to keep your mind from playing tricks on you. Planning your purchases and using a cooling-off day will help you make better financial decisions.
You can minimize the regret you feel by checking your spending habits. Sometimes buyer's remorse is a good way of rethinking those impulse purchases and expensive little toys you can't afford. If you have second thoughts about an impulse purchase, use the cooling-off rule and consider why you feel that anxiety. Don't worry about missing out on the purchase. It will be there after you've thought about it.
Once you've given yourself time to analyze those second thoughts about spending the money, you'll be ready to make a better decision. Of course, you might still feel anxious, but you'll know you did the right thing.
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