Certain purchases in life are inevitable. Without food, shelter, clothing, and other necessities, life gets rather unpleasant rather quickly. However, just because we need certain items and services doesn’t mean we have to overspend on them. And when we overspend on needs and also overspend on wants, one’s financial picture starts looking a bit bleak.
Consumer behaviour experts are often quick to point out that everyone has an emotional relationship with money, and the driving forces behind our spending patterns are often emotional and psychological issues that may not be immediately apparent. Essentially, our financial decisions are rarely based on rational, practical thoughts, but are often more strongly determined by emotions and desires that generally tend to be in conflict with the more rational part of our brains.
While it’s completely normal to spend money to fulfill emotional needs, it’s not always good for your bank account. When you spend more money than you should, or even money you don’t have to fill an emotional need, it often leads to debt. Even if you can support your spending habits, overspending takes away your leverage for investing more for your future. That’s why it’s important to identify some of the leading emotional causes of overspending.
Why We Buy
Again, many purchases are necessities. However, when we buy “for fun,” or even evaluate our options when purchasing items we need, decisions are often driven by several factors:
- Low Self-Esteem. One of the most common reasons for living beyond one’s means is low self-esteem. Someone who doesn’t have a high opinion of themselves is more likely to try to buy his or her way to success; they think that by having the nicest car or the most expensive watch, others will be impressed and want to be around them. Having nice things provides confidence, at least in the short term, but it often becomes a vicious cycle of constantly trying to keep up, and thus spending more.
- Depression. Depression can often lead to overspending; after all, where do you think the concept of “retail therapy” came from? Hitting the mall after a stressful day or when you feel sad can help boost endorphins, especially when you “treat yourself” because you “deserve it.” Occasionally this probably won’t hurt your finances too much, but making a habit of emotional shopping can be devastating.
- Instant Gratification. We live in an instant gratification society, and the concept of waiting, for anything, is becoming a foreign one. We want what we want, and we want it NOW. The problem is that by immediately fulfilling our wants, we act on impulse — when often, it’s better to let that initial wave of desire pass right on by.
- Boredom. Overspending is often an effect of being constantly connected. Between computers, smartphones, and tablets, we can shop anywhere, any time. Combined with the need for instant gratification, boredom often leads to late night purchases and “What was I thinking?” deliveries.
Understanding the underlying psychological factors that lead you to spend more money than you intended — or to live beyond your means — is only part of the battle. To really get your finances back on track, you need to put that knowledge to use and identify your spending triggers, and develop strategies to curb the desire to buy.
Some of the most effective ways to prevent spending include:
- Institute a “waiting period” for all purchases. Make it a personal policy to wait 24 hours before making any unplanned purchases.
- Compare the cost of an item to how many hours you must work to pay for it. For example, if you earn $30 per hour, and want to buy a $300 pair of shoes, it will take you 10 hours of work to pay for them. Are they really worth more than a day’s work?
- Close online loopholes. When a website offers the option to turn on “one click” purchasing, or save credit card information in our account, decline. Not only will you prevent impulse buys that don’t even requiring entering any information, you protect your valuable data from being exposed in any potential data breaches.
- Prepare other activities. When you get the urge to shop, be prepared to redirect those feelings to something more constructive. Get some exercise, call a friend, read a book, work on a hobby — basically, anything that you do that increases endorphins can give you the same “high” as shopping, without the ugly credit card bills.
Spending money that you don’t really have can be devastating to your financial health — which in turn can lead to more depression and anxiety. Take the time to look at your spending patterns and motivations, and make changes to help stop emotional spending and get back in control of your finances.