The Psychology of Spending

The Psychology of Spending

YW0115Imagine this—you’re at the end of a particularly long work week, and you’ve just been told that you’re required to take a mandatory furlough, and it’s got to happen next week. At lunch, you had a tooth fall out when you bit into an apple that you suspect had gone bad. Your son broke his arm and the Christmas bonuses have been cut. It isn’t a time to spend extra money, but chances are—you feel like it!

There are a number of things that trigger unnecessary spending, and stress is but one of them. There are several ways we justify our spending (even Jason Hartman does it) and knowing about them will make you more likely to avoid them.

Everything Does Not Require a Reward
We all fall victim to this type of thinking. Maybe you’ve been extra good at saving lately or intentionally passed on a purchase you knew you didn’t need. Your bank account is reaching new highs, and you’re excited about it! And you should be—but don’t use this as an opportunity to buy yourself something extra.

Rewarding yourself in this way, simply because your bank account indicates that you’ve earned it, will quickly derail your budget. You’ll be in the same place you started, and the novelty of your fancy new reward will soon wear off.

Be Willing To Pass Up on a Sale
While everybody loves a great deal, it isn’t a green light to purchase. Maybe something is 60% off, but it isn’t in your budget and you didn’t even know you needed it. It’s probably best that you pass on this particular item.

If you’ve been planning on buying a new mattress and you find one on sale, go ahead—it’s in your budget and is far from an impulse buy.

Redefine Necessary
We all have this way of justifying our purchases. All of our friends have smartphones so we should too. We need an extra bedroom, we need to eat at a nice restaurant, we need a fancy coffee for that long commute to work.

Social pressure can be a powerful tool that makes us think we need things we actually can’t afford. Think about how you define need, and begin to classify things more accurately as wants. Focus on your actual, real needs and watch money accumulate.

Cut Out Reactionary Spending
Remember the bad day scenario we described in the opening paragraph? This happens (in conjunction with the other triggers discussed) very often. Instead of spending money because you feel bad, work to develop new and better habits.
Instead of shopping, (in person or online) write a poem, go for a drive, clock a few miles on the treadmill—whatever it takes. Spend intentionally and not because you’re having a bad day. (photo credit: Sam Howzit via photopin cc)

* Read more from Young Wealth
Age of the Landlord
Learning to Use Cash

The Young Wealth Team