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There are two types of shoppers, those who find it a dreadful ordeal and those who can’t seem to get enough of it.
If you find you sluggishly drag yourself to the stores, you probably don’t have an issue with overspending.
However, if you are a person who loves the excitement of making a purchase, you probably find that it’s not uncommon for your pockets to be empty.
At the end of the week you might be wondering where all your money went. And you might be wondering, “Why do I overspend money?”
Don’t worry, you are not alone. Did you know that the average American overspends by about $7,400 a year?. It is a common financial challenge.
Believe it or not, there are actually psychological reasons for overspending. Understanding the psychology of overspending can be the first step in getting yourself to change your spending habits.
Read on to learn about the psychological how’s and why’s of your overspending as well as some tips to stop it!
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5 psychological reasons for overspending
I can’t stop spending money! You may feel this way and to some degree it can be true. There are some psychological factors in overspending that make it even harder to stop.
There is a link between your mental health and money. According to Elizabeth Dunn, a professor at the University of British Columbia and writer of the book Happy Money, there is a financial psychology that people need to deal with.
Understanding the psychology of overspending can help you gain control over your budget and your bank account!
Related reading: YNAB vs. Personal Capital
1. Emotional and Stress Shopping
You’ve heard of emotional eating, well there is such a thing as emotional shopping. Sometimes we buy things to feel better or make ourselves happy.
Or if we have a lot of stress in our life, we may spend money to temporarily make us feel better. Emotional shopping is probably one of the most common psychological reasons people spend too much money.
Understanding the financial psychology of emotions and purchases can help you.
2. The Scarcity Principle
This just means the less available something is, the more you want it. You may buy something because you think it won’t be available soon and it is your only chance.
Your spending habits can be influenced by this trick of the mind.
Anchoring is about how people evaluate the price of something when deciding whether or not to buy it. A good example is if something is normally $200 and is on sale for $100, you will focus on the savings amount of $100 instead of the actual cost.
You might purchase it because you think you are saving so much money, but in the end maybe you shouldn’t be spending the $100 in the first place. Be aware of factors like this that might make you tempted to spend money.
4. Social Pressure
Sometimes we make purchases we shouldn’t make just because of the social influence of someone we are shopping with!
Human nature of social camaraderie can make us overspend our budget. See if your spending habits are affected when you are with others.
5. Status and Symbol
Keeping up with the Jones’s is a real thing! Whether we realize it or not, having expensive items can be a status symbol.
People respect and envy others with money. And, money can equal power. So it can influence our spending habits.
We may buy things that are out of our budget because we want to look good to others. Especially if we are already insecure, which most of us are!
You want people to perceive you in a certain way. But try if you can to strip yourself of this. Just worry about making yourself happy which also means avoiding financial stress.
Don’t let the desire to look a certain way make you sacrifice your finances or your future!
6. Ease of Access
This is basically an extra reason, that is some-what psychological but very powerful. Because of the options of credit cards, we can overspend because they make it easy to buy even when we don’t have the money.
Credit cards are a dangerous thing, allowing us to feel like we can make a purchase. When really we can’t! Credit card debt can increase your spending habits and absolutely destroy your finances.
Psychologically, they can give you the false idea that it is ok to purchase something, even without the cash in your bank account. Credit card companies make their living off the psychology of overspending!
6 Tips to Avoid OVerspending
Now that you understand the psychology of overspending, try these financial self control strategies to adjust your spending habits.
1. Use lists to limit what you spend
If you want to know how to avoid overspending, making a list can help with self control! Before heading to the grocery store or mall, make a list of what you need to buy.
The problem with shopping is sometimes we gravitate to what we want to buy, rather than just what we need.
If it isn’t on your list, don’t go there. Sticking to a list will help you avoid excessive spending.
It can be hard to shop with total blinders on though. If a sexy pair of boots makes eyes at you from across the store it can be hard to resist.
So, in the case that you do see something you really want, think about it before buying it. If you still want it after 48 hours, it will be worth the trip back, if not, you’ll find you just made your first decision to shop within your means.
Plus, maybe overnight you can think of a way to come up with the extra funds for the boots! Got something in your closet you never wear? Sell it!
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2. Understand the psychology of your overspending
We’ve all done it. Gone to the mall and bought ourselves a treat because we had a bad day. Or a bad week, or a bad month lol.
Sometimes we overspend and waste money to fill an emotional void. Understanding why we make impulsive purchases can help you figure out how to stop excessive spending.
Find alternate activities to boost your mood that won’t cost you extra money. Not only will you be getting control of your spending habits, you might increase your mental and physical health.
Adjusting your financial behaviors will have other positive consequences.
Here are 3 Budgeting Strategies:
3. Shop with cash to stop overspend
It’s really easy to spend money when you rely on credit cards. There is something about using a card instead of cash, that makes it feel almost like you aren’t spending actual money.
And your mind can play tricks on you, justifying impulsive purchases by saying you will pay it off later.
Swiping that card without thinking or looking at your receipts may mean you have a heart-stopping shock at the end of the month when you get your new statement.
Credit leads to financial stress.
Plus, if you have an interest rate on your card, then you will end up paying more for the item than the store is charging!
Instead of using credit cards, set aside envelopes filled with cash before you go shopping to stay within your budget.
Every time you have a few extra dollars left over, you can put them in a new envelope and build a “treat” fund. Here are 9 cash envelope categories to start.
4. Track your spending down to the cent
Ultimately, a budget is really key to learning how to shop within your means and prevent yourself from overspending.
If you find yourself really falling into debt, set up a budget worksheet or even just a paper list to keep track of your incoming and outgoing money.
Write down all your income and expenses to see if you are spending more than you are taking in. Look for hidden recurring charges and subscriptions you can cancel.
You can then better set a budget for yourself and avoid impulsive purchases. If you realize you are spending too much, you can find ways to reduce spending. This can help you start saving money as well.
5. write down your financial goals
One way to get yourself to stop spending too much money is to write down all your personal financial goals as motivation.
Maybe you want to save money for a down payment on a house. Or you want to invest in stocks, or start a business. The most important thing about saving money, is that you can use it as a tool to make more money.
Being aware of your spending decisions will help you experience financial growth.
Knowing your goals and reminding yourself of them anytime you feel like overspending can help you stop! And make sure you always have self compassion.
6. Stay away from stores
If you really want to stop spending so much money, don’t go to the mall and don’t get online. Online purchases are far too easy to make!
It can be hard to resist the urge to buy something when you see it. The best way to avoid this is to not put yourself in the situation in the first place!
Go for a walk or workout instead of visiting the mall. Read a book instead of making online purchases. Finding healthier activities to substitute for shopping will help your mental health as well.
Related Reading: 10 Money Saving Hacks
What are the Consequences of spending too much money?
One helpful tool in preventing overspend is knowing how harmful it is! Spending too much money is hurting your financial and mental life.
Here are just a few of the issues overspending can cause:
- Incurring costly debt
- Preventing yourself from making more money
- Causing mental stress
- Never getting ahead
- Cycle of guilt
What are the signs of overspending?
First things first. You need to know the signs that you are spending too much money each month!
Here are signs you are spending too much money:
- Too much credit card debt
- Only making the minimum payments on your debt each month
- You are not saving any money (Check out these reasons you can’t save money)
- Spending more than you make
- Living paycheck-to-paycheck
- Using credit cards to make purchases
How Purchasing Things Can Make You Feel
There are some definite feelings that come with buying things.
Knowing these are factors in your overspending can help you get control and improve your financial well being.
Here are some feelings that come with buying things:
- A high from getting something new
- Fulfillment from getting what you want
- If you are depressed, buying something can make you feel better
- You may feel your image with others will be improved
Feelings Associated with Money
One thing that can help you is to be aware of the feelings that can be associated with money.
There can be both positive and negative feelings about money that can affect your day-to-day life.
Here are some common money-related feelings:
- Stress from not having enough of it
- Ashamed if you are not doing well financially
- Shame from spending money when you shouldn’t have
- Worn out from dealing with money issues
Frequently Asked QUestions
What is the Root Cause of Overspending?
The root cause of overspending is usually psychological. It can be any of the reasons we identified above: to make yourself feel better, to improve your status, to take advantage of a sales offer.
You need to figure out for you personally, which of these factors is the strongest so that you can improve your financial well being.
What MEntal Illness Causes Overspending?
Well as we discussed, we can all overspend for reasons related to psychology and emotions. But in some extreme cases, people have an illness of overspending. Bipolar disorder can cause poor impulse control and mania which can cause extreme overspending.
What Are 2 Common Reasons That Cause People to Overspend?
There are many reasons people overspend. But 2 common reasons are emotional spending which is buying things in order to make ourselves feel better and lift our mood.
And ease of access with credit cards is another common reason for overspending.
How Do I stop Spending Money Psychologically?
Any of our above financial self control strategies will help you adjust your financial behaviors. But one of the most important ways to stop emotional spending is for you to identify and know your individual emotional spending triggers.
Everyone has different psychological reasons for spending money, figure out what your emotional triggers are so that you can get control of them.
Once you have done that, use some of these tactics to help:
- Create and stick to a budget
- Stay away from your favorite stores both online and in person
- Don’t ever use credit cards
- Pass up sales and special offers
- Use the 48 hour rule (think about a purchase for at least 48 hours before you make it)
Final Thoughts On The PSychology of Overspending
Understand your own psychology behind your spending habits to help yourself improve your financial well being. You can keep yourself from getting money problems, and ultimately you will be a lot happier.