Have you heard about the psychology of spending? There are money beliefs you may hold that influence how you spend your money. Often these influences themselves are stirred by factors like marketing, social relationships, and spending habits.
Dr. Brad Klontz, author and founder of the Financial Psychology Institute stated there are “factors [that] make up your “money scripts,” or your beliefs and emotional connection to money. He adds, “They get adapted as you go through life by watching other people, your culture, your neighborhood, and your friend group.”
Answer these questions: Have you wondered why you made a purchase you didn’t even want or need? Why did you buy one brand over another? Why did you use credit for the purchase?
The psychology of spending is about getting a better understanding of your relationship with money and the motivations that cause you to spend. Often purchasing decisions are made without paying much attention to the thoughts and emotions of the moment. And spending can also be a response to marketing messages or some psychological need for control.
Here are two factors that often impact your spending:
Keeping up with the Joneses – making purchases based on what others are buying. Keep in mind when you keep up with the Joneses you’re not living your life but trying to copy theirs.
Advertising – commercials, and ads work to compel you to buy things for a variety of reasons. These advertisements pull on our desire to improve our lives, make us feel sexier, or increase social appeal.
How to understand your psychology of spending
At its basic definition spending means paying money for things and experiences. Spending habits are regular practices often done subconsciously and are hard to give up or change.
Let’s break down the difference between mindfully and habitually spending.
- Mindfully spending is when you’re conscious of how you’re spending and where you’re spending money. You’re aware of your choices and notice the signs of bargain shopping and the lure of one-day sales.
- Habitual spending is automatic and often without thought. You’re spending because you’ve been programmed to do so. And often, we don’t question these purchases because they are ingrained into our everyday life.
Spending habits begin early and are influenced by how family and friends handle their own finances. Basically, wow your parents handled money and the spending habits of your friends can influence your spending on a subconscious level. I explored this concept through the ACT Process in my book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life (get your copy here).
Awareness of the Psychology Behind Your Spending Habits
Let’s do an exercise. Take a sheet of paper and divide it into two columns. Write “Good” in one column and “Bad” on the other. Then, list your spending habits into two categories: Good and Bad. Take time to think about each purchase. This isn’t an exercise to shame or blame. The goal is to increase your awareness.
1. List the good and bad spending habits
Be as specific as possible. Don’t make any judgments as you list your habits.
Good habits may be saving for an emergency fund, paying off credit card balances in full each month, carrying no debt, or paying off bills on time each month.
Bad habits may include borrowing money from family or friends, keeping credit cards up to the limit, or eating out every night.
2. Determine the emotion behind the spending
To help you gain a better understanding of your psychology of spending do the following. Figure out what is causing the bad habits to continue and the level of influence it has on the quality of your life. Take time to really assess the reasons behind the habits.
- On a separate sheet of paper write down the conditions that cause you to continue the bad money habits and how often the habits cause grief.
- Determine what you can do to change. Write down ideas.
- Create a plan or process to stop the habit.
Answer these questions: do you spend money as a form of retail therapy? Do you feel down so you go shopping? Are you socially spending to keep up with your friends and overspending on goods to make you fit in?
If the answer is yes to one or all of these, then ask yourself what can you do to be more aware of when these spending habits come up. Could you ask yourself, “Do I really need to make this purchase today?” A simple questioning of the purchase may be the break you need to keep you from spending unconsciously.
Simple Tip to Mindfully Spend
Due to my past spending habits, I had to take drastic measures to curb my propensity to spend. I learned how important it was for me to pause before a purchase. I ask myself three simple questions for each purchase.
- Do I need it?
- Do I need it now?
- What will happen if I don’t get it?
Ask these questions sequentially from 1-3. If you answer yes to #1, then ask question #2. Answering “yes” on #2 requires you to ask question #3. Pay attention to your answers.
What happens with this simple process? Asking these questions is often the pause needed to think through the emotion of spending. The next time you feel compelled to spend try this 3 part questionnaire.
You can also read more about this in my book, You Only Live Once.
Habits form easily and are challenging to change
Every day we are faced with hundreds of choices, and it is impossible to consciously think about all of them. Spending habits are easy to get into, but they are not always beneficial. Financial situations often change and what once was affordable may no longer be affordable for you.
The basic premise of the psychology of spending is understanding why we spend the way we spend. When you’ve figured out your spending habits, you can strengthen your good habits with rewards. You can also create a plan to break bad spending habits by making small adjustments in how you use your time, how you surf the internet, scroll through social media, and what emails you receive that can affect your spending habits.
Want to read a book to help you gain a better understanding of your spending habits? Dr. Brad Klontz’s recent book, Money Mammoth (available on Amazon), explores how the brain’s wiring impacts our relationship with money—and what you can do to make the changes to reign in your spending on non-value-added purchases.