Saving money to invest is smart.

Planning for the future is essential. 

But there’s a fine line between being financially responsible and letting portfolio values drive your decisions. 

One of the most subtle yet impactful traps in financial planning is the negative wealth effect. 

This occurs when a sudden drop in your perceived net worth (like a dip in your 401k or home value) causes you to feel poorer, even if your actual income and financial stability haven’t changed. This psychological shift often leads people to cut back on spending—not just on luxuries, but on the very experiences that bring meaning, connection, and joy to their lives.  

And that’s when internal and external conflicts begin.  

The First To Go, But Should It? 

When people react to a market downturn or economic uncertainty, one of the first things they scale back on is experience spending—travel, events, concerts, dining out, hobbies, and other non-essential but fulfilling activities.

For many, these aren’t reckless purchases; they’re often the things that create memories, deepen relationships, and improve well-being. Yet the negative wealth effect convinces people that now isn’t the time. 

“We’ll go next year.” 

“Let’s wait and host a big celebration on your ___th birthday”. 

“I’ll take that art class when things feel more stable.” 

Here’s the rub: markets are never stable but do come back, while specific opportunities don’t.

Timing of Experiences Are Critical

Consider the family vacation to Disney, it is a different shared experience for all going when kids are 6 & 8 versus their late teens. 

Or the family trip with your HS senior you’re planning to do. What’s their availability (and desire) once in college to go on a family trip with mom and dad? That window’s closing. 

You might delay a trip only to find your health, schedule, or relationships have changed. 

A Psychological Toll

There’s a hidden cost to delaying experience spending, and it’s not just about missing out on fun. It can lead to a sense of stagnation, disconnection, and even regret. As humans, we are wired for novelty, connection, and purpose. When we constantly suppress those desires due to financial fear, even when we can afford it, we shrink our lives unnecessarily.

Over time, this pattern will increase stress and negativity which creeps into your work and relationships. What’s worse, these delays rarely improve your financial picture meaningfully. Even after skipping a few celebrations or delaying a vacation, it’s not going to make your 401k come back. 

Don’t Let Perception Steal Reality

The key is recognizing that the negative wealth effect is largely psychological. Your net worth on paper will fluctuate, but if your income, emergency savings, and long-term plans are still intact, then cutting off all experience-based spending will do more harm than good.

Ask yourself: “Is my fear based on the actual numbers—or how I feel about them?” 

If it’s the numbers, then review your historical net worth data and if it’s close to 12-24 months ago, know this happens and will happen again. Move on.

Now if it’s how you feel, then consider the sources driving your fear. If you’re doom-scrolling politics, maybe it’s time to put the phone down, go for a walk, listen to some music and think how to move forward with your planned experience spending. 

Now if your budget doesn’t have planned experience spending, that’s another topic for another day. 

Life Moves Pretty Fast…

To paraphrase Ferris Bueller, “Life moves pretty fast, if you stop until everything feels financially perfect, you could miss it”. Spending mindfully on experiences that matter isn’t wasteful—it’s often the best investment you can make. Oh Yeeeaah!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, www.PlanDynamic.com. Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.

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