What’s the aftermath of this past holiday season? Did you fall out of your routine during the holidays and are still not back to your old self? Or did you spend too much on gifts and trips this past December? Luckily, the new year is upon us and it’s the perfect time to set things straight again. For many people, the dawn of a new year means setting New Year’s resolutions, both personal and financial. And those financial resolutions are what we want to help you with today.
Have you already made plans to finally draft up a budget to get your finances in order? Or set a savings target for 2024? While many make plans to draft up a budget, a large portion of these people either don’t end up creating one or overshoot it within the first month. In fact, as much as 84%(!) of Americans overshoot their budget if they have one. We’re here to help you change that.
The number one reason people overshoot their budget is emotional spending. And sure, buying a new pair of sneakers may soothe your anxiety or stress for a second or two, but doing this often can catapult you into debt quite easily. Because this is such an important concept to keep in mind if you’re serious about getting your finances straight in 2024, we’ll dive deeper into this topic in this article. We will start by explaining what emotional spending is and how you can identify triggers for emotional spending in your day-to-day life. After you know what it is and how you can identify it in yourself (and others!), we share some powerful tactics to help you overcome emotional spending. Ready? Let’s dive in!
What is emotional spending?
Most of the time, you buy something because you need it. You buy food because you need to eat. You pay your rent or your mortgage because you need shelter. You pay your utility bill because you need water and heat in your home. You may even pay for a car because you need to go from A to B and public transport is not readily available. You get the picture.
On the other hand, there are plenty of examples in which we don’t need the thing but still buy it. Like buying a pair of shoes when we already have 8 pairs at home. Or buying the newest iPhone when we have a phone that’s perfectly fine. Why do we buy those things? Emotional spending. We buy it because we feel a certain way or want to feel a certain way. We’ve had a bad day at work, and while sitting on the couch we decide to buy that new pair of shoes. Because that will make us feel better. Or maybe we already feel happy and think buying the newest iPhone will make this happiness last longer.
To say it in simpler terms, it’s using shopping to deal with your feelings or boost your mood, even though you don’t need the stuff you’re buying. And while this is not necessarily bad, if you don’t have the money to afford it, not paying attention to your emotional spending can leave you in a bad spot financially. The first step to controlling emotional spending (and getting your finances back in check in the process!) is knowing how to identify it in yourself.
How can you identify emotional spending in yourself?
Buying a random item may make you feel good whenever you feel a little down. Weird, right? Well, it’s not that strange if you think of it. Ever heard of dopamine? It’s a chemical in the brain linked with pleasure and reward. It’s released into your brain and makes you feel good when you’re eating good food, listening to great music, or after a hard HIIT workout. The act of buying something can also trigger the same release of dopamine into the brain. And that’s why you might feel the urge to buy something whenever you don’t feel that well. You’re just craving dopamine because that’s what makes you feel good.
Whenever people feel down, some run to the fridge to get ice cream. Some put on some soothing music. And some open up Amazon and start buying random stuff. All are coping mechanisms to deal with a negative emotional state. Do this successfully a couple of times (and with ‘successful’ we mean you feel better after you perform the action) and a new habit is born. Then, whenever life throws something difficult at you, you turn to eating, listening to music, or shopping—whatever your poison. All to escape the negative emotions that come with that difficult situation.
But how do you recognize that you’re doing something out of emotion instead of out of a genuine need? Luckily, it’s easier than you may think. There’s a handy acronym to remember, which tells you the four states that negatively affect your mood the most. If you feel any of the four states included in the acronym HALT, be wary. You might be acting out of emotion…
HALT stands for Hungry, Angry, Lonely, or Tired. So whenever you start to engage in something impulsive, such as buying that new pair of shoes out of nothing, ask yourself, “Am I hungry, angry, lonely, or tired? Or do I really need this new pair of shoes?”. Asking yourself these types of questions before making a decision is how you increase your self-awareness. And this self-awareness helps you recognize your emotional triggers, which allows you to curb your emotional spending if you want to. Before making a purchase, pause for a second, and assess whether the purchase you’re going to make is driven by a genuine need or an emotional impulse.
Tactics to Help Overcome Emotional Spending
- Ask “Why?”
As we’ve hinted earlier, the most obvious tactic to overcome emotional spending is to ask yourself ‘Why?’. You’re sitting on the couch, ready to tap ‘check out’, but why are you buying? Do you have a genuine need for this item or are you letting your emotions control you? Is it a life-or-death situation? Or do you simply want to feel better? Knowing whether it’s an emotional decision allows you to take back control over your spending habits. If you don’t have the funds, you can now rationally choose to not buy that item. Or enjoy yourself if you do have the funds, of course.
And it doesn’t stop there. If you’ve identified that you’re purchasing an item just because you want to feel better, clearly something is going on in your brain that needs your attention. Instead of shopping, there are more constructive ways to deal with these negative states of being (remember HALT?). For example, try going for a walk whenever you feel the need to buy something you don’t need. Call up a friend or go to the gym. These activities release dopamine, just like buying stuff. That’s why it has the power to make you feel better whenever you’re a little down. There are plenty of ways to deal with undesirable feelings that do not involve spending money!
- Create a Budget
If asking why doesn’t help you in curbing your emotional spending, the next best thing you can do is craft a budget. It helps you to identify whether you’re spending your money emotionally or not, plus it helps you get your finances back on track in a multitude of ways.
To do this, you’ll have to take a cold hard look at your current situation first. Figure out how much money is coming in each month and how much are you spending on basic necessities like rent, your mortgage, utilities, taxes, phone bills, and food. Then, subtract your expenses from your income, which will give you your discretionary income. This is the amount of money you can freely spend each month.
Our advice is to save and/or invest a percentage of this discretionary income. You can use this to build an emergency fund and max out your 401k, of which you will reap the benefits later in life. It has the power to give you peace of mind, knowing that you have money saved up whenever something unexpected happens. You can even automate this so you don’t have to think about it! After you’ve saved and invested part of your discretionary income, you have an amount of money left to spend on whatever you want.
Whenever you’re going to buy something, check if it fits your budget. If not, there is a high probability you’re purchasing something out of an emotional urge. Your basic necessities are taken care of, and you’ve saved and invested part of your money, so what else is there other than emotional spending? Sure, if you have the money, go for it. But if you don’t, don’t buy it!
Let’s make 2024 your best financial year yet!
Emotional spending can be a hard one to deal with, but it’s essential if you want to get your finances back in check. Sure, you’ll get a nice hint of dopamine whenever you buy something, but there are cheaper ways to combat any undesirable feelings you may have. Go for a walk, call up a friend, or do your favorite exercise—all of these release dopamine and they won’t cost you a penny!
To curb your emotional spending, we’ve explained that you have to start by identifying whether you are buying out of a genuine need or because of an emotion you’re feeling. To do so, start by asking yourself “why?”. “Why am I buying this? Because I need it, or because I’m not feeling that well?”. If you don’t think this is going to help you, try creating a budget. See how much you can spend freely every month, and check whether the thing you want to buy still fits in this budget. If not, there’s a high chance you’re spending emotionally. And if you know that, you can make a more thoughtful choice. From there, it all depends on your discipline to stick to the budget.
We hope to have given you helpful information and powerful tactics to make 2024 your best financial year yet. Ask “why?”, stick to your budget, and let’s combat those emotional spending habits! You can do it.