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The Psychology of Spending Money

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Spending money that you know you shouldn’t spend is a universal experience. It stresses not only your budget, but also your psyche, and it can lead to feelings of guilt, shame and disappointment.

But uncovering your individual motivations for spending money, including the money beliefs you grew up with, can be the first step toward breaking the cycle. Your approach to spending, and what you regularly buy, can also be related to your current financial circumstances and whether you’re feeling strapped—in ways that might surprise you.

Here’s how to explore your own spending behaviors, and how to use that knowledge to regain power over your finances.

Why you spend money

When you’ve made a purchase you didn’t need and it left you feeling distressed, it’s possible you responded to one of these common spending triggers.

Pressure from social media

When you look frequently at others’ Facebook and Instagram profiles, seeing their new cars, vacations or shopping trips can pressure you into spending, too. There’s a reason that marketers on social media are called “influencers.”

You may also be targeted by ads for items that brands believe you’ll like, based on your demographics and browsing history.

Online shopping makes it even easier to spend as an emotional reaction to social media scrolling, said Meghaan Lurtz, president of the Financial Therapy Association.

“Couple ease of spending and feeling not great about something you saw on Facebook, and it is a recipe for disaster,” said Lurtz, who is also a senior research associate at financial planning website Kitces.com.

Your best bet is to ignore the ads and to understand that you can’t know others’ financial details — friends’ lavish vacations could be funded by credit cards they can’t pay off.

Temptation to pay with plastic

When you pay for an item with cash, the effect can feel immediate. Less cash in your wallet means less money to pay for other expenses throughout the day, but a credit card erases that awareness.

If you regularly overspend on credit cards, put yourself on a cash-only spending plan for a week, or even a day if longer feels too overwhelming. You might notice yourself spending more mindfully.

Family’s spending habits

Many of us grew up with money beliefs passed down from parents or caregivers. If one or both of your parents had an impulsive mindset or did not track spending carefully, it’s understandable you’d do so, too.

Or, maybe your parents were extra frugal. If you didn’t want your life to feel as restrictive, perhaps you’re on the other end of the spending spectrum.

Take an honest inventory of the beliefs passed down to you, and acknowledge that some of your negative spending behavior may not be your fault.

Attempt to boost mood

Shopping when we’re feeling down is a common way to make ourselves feel better, temporarily. But the boost from emotional spending is short-lived, and it could make you feel disappointed in yourself in the end.

Next time you’re tempted to buy something on a hard day, call a friend or spend time outside to improve your mood instead.

Special occasions for others

You may justify spending if it’s for holidays or others’ birthdays, since it seems more selfless than spending on yourself. But it will have the same negative effect on your budget.

Set a spending limit for these occasions, and aim to make do-it-yourself gifts if money is tight.

Behind on finances

It might sound counterintuitive, but if you’re already in debt or recently overspent on another purchase, you might be more likely to spend more. Or perhaps you’re stressed over having little money and you feel you’re owed a nice item, such as a new TV or pair of boots.

Your socioeconomic status can affect the type of spending you do. According to a study published in 2018 in the journal Psychological Science, consumers with high incomes and education levels felt happier spending money on experiences, such as concerts and travel, than on material things. But the study found that spending money on material things was more likely to make those with lower incomes and education levels happy.

7 ways to stop yourself from spending money

1. Identify your spending triggers

Once you’re aware of what encourages you to spend, you can start addressing these triggers one by one. If you need help, finding a therapist — particularly one who has experience discussing financial issues — is a good start.

Psychology Today offers a database of therapists. Or, you can use your health insurance company’s online portal to search for one who takes your insurance.

2. Set financial goals

When you have goals to visualize and work toward, you’ll be more likely to identify if the ways you’re currently spending are in line with them.

Picture yourself five or 10 years in the future. Are you in a home you own? Are you traveling the world? Write down your goal, and maybe open a savings account specifically for this purpose.

Every time you’re about to spend on something you’re unsure you need, consider whether that would take you further from your goal.

3. Track your spending

Use a budgeting app or spreadsheet to track all your purchases for at least a month. Ideally, the app you choose will categorize your purchases so you can see what you’re spending most on: meals out, personal care or clothes, for instance. Just seeing your spending might be enough to encourage you to cut back or reallocate money to certain segments of your budget.

You can also turn tracking into a spending journal, Lurtz suggested, and note how you were feeling when you bought each item. That can help you spot patterns.

“Did you shop while you felt sad, bored, angry, happy?” she said. “There is nothing wrong with shopping or treating oneself, but if we do it to mask another issue, it could turn into overspending.”

4. Allocate a ‘fun’ budget

Taking too restrictive an approach to spending could backfire. Instead, set aside a percentage of your after-tax income — say, 10% — to non-essentials each month. Don’t create parameters on what you can spend on, but don’t go beyond that amount, either. It might help you get more creative in how you spend on entertainment, and you won’t feel that you’re unable to enjoy life.

5. Pause before buying

If you have a tendency to make impulse buys, make it a rule to wait 24 hours before purchasing anything either in person or online. Ask if a store will hold the item for you, or leave the item in your online shopping cart for a day.

You might find you don’t need it as much as you thought you did, or that you forget about it altogether.

6. Find an accountability partner

Perhaps a friend, partner, coworker or family member is also looking to reevaluate their spending. If so, reach out and suggest you keep in touch weekly or monthly about how you’re doing.

Meet to set up a budget or spending tracker together, share your goals and cheer each other on.

7. Forgive yourself for mistakes

There will be times you overspend — or you’re tempted to — even after you’ve made progress. That’s normal. Instead of getting angry with yourself and potentially spending more thinking you’ve already messed up, be kind to yourself. Treating the issue with lightness will keep you from falling into a deeper spending spiral.

The consequences of overspending

When you overspend, you face tangible consequences, such as accrued interest on credit cards, potentially missed bills and the resulting negative impact on your credit. Payment history accounts for the biggest share of your credit score, so not having enough money to pay credit card or student loan bills could harm your score and your ability to borrow money in the future.

Plus, knowing you’re overspending can create a growing feeling of dread if you’re unsure of how to get back on track. You might be tempted to avoid looking at your credit card or checking account balances at all.

To avoid these consequences and control your spending, get to the heart of why you spend, and do your best to not feel so ashamed that you’re afraid to ask for help.

Final word

Many consumers struggle with their finances, so know that you have company. But the reasons why you spend will be specific to you, and it’s worthwhile to understand them. That will give you the insight to make changes that can help you feel more in control of your financial life.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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How to Recognize a Financially Abusive Relationship — And How to Get Out of It

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Domestic violence shatters a victim’s sense of physical and emotional safety, and financial abuse makes it even harder for victims to break free from the grip of their abuser.

Financial abuse is “using money and financial tools to exert control,” according to the National Network to End Domestic Violence. Abusers may give victims an allowance, harass them at work or ruin their credit by opening credit cards or borrowing money and refusing to pay it off.

An abusive partner limiting a victim’s ability to save money, find housing or develop financial independence makes financial abuse one of the main reasons victims decide to stay in or go back to abusive relationships, said Kimberlina Kavern, senior director of the Crime Victim Assistance Program at Safe Horizon, a New York-based nonprofit victim assistance organization.

And it is frighteningly common. According to the Centers for Disease Control and Prevention, one in four women and one in nine men have been the victim of intimate partner violence, which includes sexual and physical violence and stalking. In a 2008 study published in the journal Violence Against Women that included accounts from 103 survivors of domestic violence, 99% reported they had experienced financial abuse.

Here’s how to identify financial abuse in a relationship, and the steps to take to find safety.

How to recognize financial abuse

Financial abuse can happen alongside physical and other types of emotional abuse, including intimidation, isolation and coercion. “What’s backing that behavior up is the constant threat of actual physical or sexual violence,” said Kim Pentico, director of economic justice at the National Network to End Domestic Violence.

An abusive partner may engage in financial abuse in the following ways, according to Kavern, Pentico and Rosemary Estrada-Rade, director of digital services at the National Domestic Violence Hotline:

  • Stealing credit cards or cash
  • Taking out debt in the victim’s name, or forcing the victim to cosign on a loan
  • Hiding money
  • Forcing the victim to file fraudulent tax returns
  • Giving the victim an allowance
  • Demanding the victim hand over receipts for purchases
  • Limiting how much a victim can work or preventing them from working
  • Requiring the victim’s paycheck be deposited into the abuser’s account
  • Using the victim’s credit cards without permission
  • Harassing a victim at work or forcing them to be late, putting their job at risk
  • Refusing to work and forcing the victim to be the sole breadwinner
  • Withholding food, clothing, medication or other necessities
  • Buying items for themselves but not providing for the victim or children

“Financial abuse, like other abusive tactics, starts very subtly,” said Kavern. For instance, an abuser may offer to take care of the family’s finances to reduce the victim’s duties at home. “Over time, you see that the abuser is giving them less control, and it’s serving as a way to isolate the victim,” she said.

How to get out of a financially abusive relationship

Safely ending an abusive relationship requires making careful preparations that will protect you from the abuser.

“When you are leaving an abusive relationship, that’s when victims are in the most danger,” Kavern said. “You should have a good safety plan in place.”

That can include identifying where the abuser will be when you leave and how he or she might respond, as well as whether you’ll pursue an order of protection against them. You may also consider saving money in ways the abuser is unlikely to discover.

For instance, Pentico says survivors have brought coupons with them to the store, but instead of using them at the register, they asked the customer service desk for a refund on the difference between the regular and sale prices. It appeared on the receipt that all items were purchased at full price, but the victims put the cash refund in their own savings accounts. Here are other actions to take:

  • Pull your credit report for free from www.annualcreditreport.com and note whether the abuser has opened any accounts in your name. If he or she has, you may have been a victim of identity theft. You can report it and receive a free, personalized recovery plan through the Federal Trade Commission’s IdentityTheft.gov website.
  • Also, if the abuser ran up unpaid debt on these accounts, which affected your credit score, you can consider disputing any negative marks on your credit report. Do so at each of the three major credit bureaus — Equifax, Experian and TransUnion — or contact the FTC for personalized advice on your situation.
  • Consider opening your own checking account, if you can do so safely, and getting a credit card in your name only. That will help you build your own credit history and develop financial independence.
  • If leaving your relationship results in financial hardship, resources like the Moving Ahead Curriculum, a five-part online program developed for survivors of domestic violence by the National Network to End Domestic Violence and the Allstate Foundation, can help you explore how to rebuild your finances.

The bottom line

You’re not alone as a victim of financial abuse. In a 2018 survey administered to domestic violence survivors who contacted the National Domestic Violence Hotline, 67% said they stayed in or returned to abusive relationships due to financial concerns.

If you’re struggling to free yourself from your abuser, there is a community of support available to assist you at any point. To get help:

  • Call 911 if you’re in immediate danger.
  • Contact the National Domestic Violence Hotline to talk to an advocate who can connect you with resources in your area and help form a plan to get out of the relationship safely. Experts are available 24/7 at 1-800-799-SAFE or via online chat.

A National Domestic Violence Hotline advocate can put you in touch with local agencies that provide support finding housing and getting public benefits. Each state also has its own organizations that offer resources to victims. There is hope and happiness on the other side of financial abuse; the first step is to ask for help.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Pay Down My Debt

7 Debt Consolidation Myths

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Debt consolidation is a way to pay off existing debt with a new loan or line of credit. It could provide relief by turning multiple payments into one, streamlining what you owe and saving you money thanks to a lower interest rate or more time to repay.

Dispelling these 7 debt consolidation myths

In the right circumstances, debt consolidation can help get debt under control. But there are entities that offer the promise of debt consolidation yet don’t deliver — and even charge illegal fees in the process. Understand the following debt consolidation myths, and the pros and cons of the process, before pursuing it.

1. You can consolidate all types of debt together

There are many types of debt consolidation. A debt consolidation loan, for instance, is a personal loan that can be used to pay off multiple kinds of high-interest debt, such as credit cards and payday loans.

But it can’t be used to pay off federal student loans. There’s a separate process for that, called federal student loan consolidation. This option won’t reduce your interest rate, but it can give you more time to pay off your loans or qualify you for additional reduced-payment programs.

You can also consolidate credit card debt on its own using a balance transfer credit card, which moves high-interest debt across multiple cards to a single one. You’ll have as long as 21 months, depending on the card for which you qualify, to pay off the debt interest-free.

2. You need excellent credit to consolidate debt

Like other types of financial products, the higher your credit score, the more favorable terms you’ll get on debt consolidation loans and balance transfer credit cards.

But you can qualify for a debt consolidation loan with good, fair or even poor credit. Visit your local bank or credit union to check the options available there first. You may qualify for a lower interest rate if you have a long-standing relationship with the institution.

You can compare rates on debt consolidation loans through MagnifyMoney’s marketplace.

3. You have to pay to consolidate debt

If you qualify, you could get a balance transfer credit card with no transfer fees and no interest charges during the introductory period. Paying off your debt during that time means consolidating your debt fee-free.

But some cards do come with a balance transfer fee; consolidation loans may also have origination fees. Take these into account when considering whether to consolidate your debt or choose a different option, such as negotiating with your creditors yourself to lower interest rates.

Use caution if you interact with a company that charges to consolidate debt for you. Some companies charge fees to consolidate student loans, for instance, which is free to do directly through the government at studentloans.gov. The Federal Trade Commission (FTC) maintains a list of companies that it has banned from offering debt relief services.

It is illegal to charge a fee by phone before issuing a loan, according to the FTC. Familiarize yourself with the signs of an advance-fee loan scam.

4. Debt consolidation is always a scam

On the other hand, there are legitimate types of debt relief that may cost money.

Though not specifically a type of debt consolidation, debt management plans require working with a nonprofit credit counseling agency to simplify payments and potentially pay less on interest. You’ll make one payment to the credit counseling agency each month, which will then pay your creditors on your behalf. You’ll be charged a monthly fee and potentially an enrollment fee.

But you may find these fees are worthwhile to address your debt with the help of a reputable professional. A debt management plan requires making payments regularly and on time for the full length of the plan, which could take up to five years.

5. Debt consolidation will hurt your credit

Opening new accounts, such as a credit card or loan, may lead to a small drop in your credit score. An inquiry for a new credit card generally takes fewer than five points off a FICO Score, according to FICO. But opening multiple new accounts over a period will more dramatically affect your score.

Research your options in advance so that you apply for a balance transfer card or debt consolidation loan for which you’re likely to qualify. Once you get it, make payments on time, every time. Payment history accounts for the largest share of your credit score — 35%, according to FICO.

6. Consolidating debt is the only way to find relief

You may not have to apply for a new credit card or loan to get out from under your debt. Alternatives to debt consolidation include working directly with your creditors, who may be willing to lower your interest rate, waive late fees or give you a new monthly payment. You could also choose a debt management plan, which doesn’t require you to open a new line of credit.

If you can pay extra toward the debt, you can opt to pay off the smallest loan balance first, then put the equivalent of that monthly payment toward the next-smallest balance. This is the debt snowball method, and can help you gather wins on your way to debt freedom. Or you can pay the highest-interest loan first, called debt avalanche, which will save more money in the long run.

7. Pursuing debt consolidation is a cure-all

While debt consolidation can help you feel less overwhelmed in the short term, ending a reliance on credit cards — and preventing future debt — is a separate, and necessary, process.

Once you’ve chosen a debt consolidation method, audit your expenses and make a spending plan. Cancel subscriptions you no longer use and identify areas that need a closer look, such as how much you spend on meals out. You don’t need a complete overhaul of your budget, but a few key changes — such as cutting back on food delivery or reducing subscription services — can help you avoid creating more debt.

When debt consolidation works

Debt consolidation is a smart move when you qualify for a balance transfer credit card or loan that will lead to interest savings, as well as when you make payments on time for the duration.

Pause making purchases on the accounts you’re paying down. If you get a balance transfer credit card, make sure you fully pay off the debt during the card’s interest-free period. Divide your total debt by the number of months with the 0% interest rate and commit to sending that amount to the card each month.

Choose the right debt consolidation method for you

While debt consolidation myths abound, researching your options and relying on reputable sources of professional guidance will help you land on a strong strategy. Deciding to pay off debt is half the battle. The next step is to choose a debt consolidation method that will give you the best chance of success.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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