Understanding why we spend money is critical to managing our finances.
Research shows that our emotions, social influences, and thought patterns affect our spending habits. By knowing what drives our spending, we can make better choices and develop healthier financial behaviours.
So why do we spend more than we need to?
Studies have shown that our emotions significantly influence our spending decisions. When we feel sad or down, we tend to spend more money to make ourselves feel better. On the other hand, when we feel happy or excited, we may also be more likely to spend money to indulge in our positive emotions.
Another factor that can influence our spending habits is social comparison. When we believe that our peers are spending more money, we may feel pressure to spend more ourselves to maintain our social status. This can lead to unnecessary spending and financial strain.
We may also be influenced by certain cognitive biases when making spending decisions. The “anchoring effect” is one such bias when we place too much importance on the first piece of information we receive, known as the “anchor.” Retailers often use this phenomenon to their advantage by displaying the original and discounted prices to make the discount seem more significant. This can lead us to make purchasing decisions based on the perceived value of the discount rather than the item’s actual value.
Changing Financial Behavior
Developing awareness and mindfulness about spending can help counteract psychological triggers that lead to impulsive purchases. Here are some tips to help you get started:
- Keep track of expenses to identify unnecessary spending and set realistic budgeting goals.
- Set clear and achievable financial objectives to stay motivated and focused on your goals.
- Pay attention to your emotions and how they affect your spending habits to make more mindful purchasing decisions.
- Connect with like-minded individuals or financial support groups for accountability and encouragement.
By understanding the underlying causes of our financial behaviour and addressing psychological triggers, we can develop a more intentional approach to spending. By doing so, we pave the way for financial well-being and stability.
How can a financial planner help?
Working with a financial planner can help you manage your money better and feel more secure. Financial planners know a lot about budgeting, investing, and planning for the future. They can assist you in figuring out what’s important to you and make a plan that works for you. They can also help you deal with emotional spending and stay on track. Financial planners are good at teaching people about money and encouraging them to make good choices.
