The Psychology of Spending – Understanding and Overcoming Overspending Habits
No matter whether it is pants, wine or concert tickets – spending can often be motivated by emotional and external factors that lead to overspending. Understanding why it happens will allow for sustainable changes that build savings over time.
Reaching financial goals and improving overall financial wellbeing requires finding ways to control spending patterns, but doing so may be daunting and time consuming. Here are some key reasons you overspend:
1. Impulse Control
Buyimpulse can lead to serious financial difficulties. It could create credit card debt and divert money away from important savings goals like down payments on homes or retirement savings accounts.
Impulsivity is an increasingly prevalent problem among youth. While some might attribute impulsivity to rudeness or lack of self-discipline, in reality it may be related to attention deficit hyperactivity disorder (ADHD).
Compulsive shoppers often equate spending with their sense of worth and value, believing material purchases will elevate their status in society. Finding healthier ways to cope with stress, emotions and low self-esteem may help overcome such tendencies; setting a budget and waiting at least 24 hours before making impulse buys may also prove effective.
2. Scarcity
As six out of ten Americans now live paycheck-to-paycheck, many struggle with scarcity – whether that means money, time or connections to others – leading them down an unnecessary spending path through fear-induced overspending. Scarcity creates an unnecessary fear that drives overspending by creating an unreasonable fear that they’ll lose what they already possess.
One way to overcome this problem is to prioritize needs over wants when setting your budget, while using cash instead of credit cards requires you to physically see how much money is being spent and encourages mindful decision-making. Finally, it may help identifying environments or times of day where spending occurs as triggers so you can devise a plan to avoid those environments/times of day and set financial goals with friends so they hold you accountable for maintaining healthy spending habits.
3. Delayed Reward Discounting
If you want to ensure that your budgeting stays on track, understanding the psychology behind your spending habits is a great way to do so. Step one should be to identify any emotions or environments which prompt impulsive spending, such as craft fairs or malls or feeling lonely or sad.
Delay discounting experiments typically employ appetitive hypothetical rewards instead of unpleasant physical consequences such as electric shocks or emitting an uncomfortable sound (Monterosso & Ainslie, 2007). Furthermore, delay time and choice amount used during the task is frequently adjusted according to subjects’ choices during each task phase.
This can create a domino effect in which the choice point for larger and later alternatives moves towards greater values.
4. Overestimating Small Expenses
Mentally keeping track of large monthly expenses may be simple enough, but keeping tabs on all those small purchases – like coffee and snacks — can quickly add up. That’s why creating a budget that includes these unplanned purchases is vitally important to achieving financial freedom.
Some individuals can become vulnerable to overspending because of deeper personality traits, like depression or low self-esteem, which makes them more prone to marketing messages promising material things will enhance their image. Seeking treatment for these emotional triggers and finding healthier coping mechanisms may help overcome overspending habits; tracking monthly spending habits also provides clarity around your spending and helps identify where problems exist.
5. Boredom
Boredom is an uncomfortable psychological state caused by lack of stimulation. This state can lead to feelings of dissatisfaction, frustration and restlessness as well as the desire to find new goals, activities or experiences.
Studies have shown that people who feel bored may be more inclined to engage in risky behaviors such as drug and alcohol abuse, eating disorders or even suicide (International Journal of Epidemiology 2013).
To alleviate boredom, try something new. Maybe paint a picture, go cycling or experiment with new recipes – perhaps these activities will provide more enjoyment than what was once boring? Or save some money as an emergency fund against any spending due to boredom-induced spending!
