Psychology of Spending - Straight Fire Money (2024)

FAQs

What is the psychological effect of spending money? ›

Spending may give you a brief high, so you might overspend to feel better. You might make impulsive financial decisions when you're experiencing mania or hypomania. If your mental health affects your ability to work or study, this might reduce your income.

The need for instant gratification is another psychological factor that leads to overspending. We often overspend to immediately enjoy the pleasure of purchasing something new or exciting. This may be due to impatience and a preference for immediate gratification rather than waiting.

Science has shown that our spending habits can often directly reflect our emotional being and inner desires. Though we may not give much thought to it, every purchase can be tied back to our emotions, known as the “Psychology of Spending.” Some may spend money to feel “even” in life with others.

Living by the rules. Prelec says our spending habits are based on an accumulation of rules, like “I never take a taxi unless it's an emergency” or “I never buy high-priced gourmet foods.” Those rules, he says, are designed to keep us out of financial trouble, and we suffer a sting of guilt whenever we break one.

One sign of financial trauma is compulsive or impulsive spending. Individuals experiencing financial trauma may engage in excessive shopping or spending habits as a means to alleviate their emotional distress or seek temporary relief from their financial worries.

For some, overspending becomes buying-shopping disorder, or compulsive shopping disorder (CSD), which is characterized by repetitive, uncontrollable spending that causes serious life difficulties.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

Compulsive spending, sometimes called compulsive buying disorder or oniomania, is spending far beyond what is necessary. Though it often causes financial harm, people of means may engage in compulsive spending without suffering serious financial disaster.

Our money mindset is shaped by a complex interplay of factors, including upbringing, cultural influences, past experiences, and personal beliefs. These factors combine to create a set of attitudes and beliefs about money that guide our financial decisions. Your money mindset is usually established early in life.

Overspending, however, is a common symptom of bipolar disorder and is often linked to the euphoria and excess energy of a manic episode.

What is ego spending? ›

The Ego Economy is the resources we spend on trying to not feel powerless in the face of need, on feeling close to a community, on removing guilt, and on buying hope.

Causes financial stress: Overspending can cause financial stress. When we spend more money than we earn, we may feel anxious about our financial situation. This can lead to stress, which can have negative effects on our physical and mental health.

Overspending can have a significant impact on your finances. It can lead to mounting debt, financial stress, and a constant struggle to make ends meet. When you constantly spend more than you earn, it becomes difficult to save for the future or invest in assets that can grow your wealth.

With overspending, there will be an increased amount of stress to pay your previous month's bills and the EMIs (equated monthly instalments) of your debt. This can affect your mental health and can have repercussions on your physical health as well.

While a lack of resources fosters greater emotional intelligence, having more resources can cause bad behavior in its own right. UC Berkeley research found that even fake money could make people behave with less regard for others.