The Psychology of Spending Money

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Updated on Friday, October 11, 2019

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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

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.