Don’t Let Your Emotions Wreck Your Budget

Emotional spending ruin budgetHow we feel about money influences how we save – or spend it.

On the surface, saving money sounds easy. You just have to spend less than you earn. But it never seems to work out that way. Too often, we overspend and take on more debt – even though we know it’s not good for us.

So, why do we practice bad money habits?

Chances are the last time you sat down and worked on your budget you focused solely on the numbers. The problem with that approach is that successful management of your finances requires more than just adding money and subtracting expenses.

In fact, our financial situation is as much about our emotional state as it is about maths.

The Spend Today and Save Tomorrow Approach

Consider this scenario:  You receive an unexpected £2,000 bonus from work.  It’s ‘found money,’ i.e. money you weren’t expecting, money that won’t leave a hole in your budget if you spend it. What do you do?

  • Option A:

You take the entire amount and put it towards your emergency fund or retirement, locking it away in a savings fund the same day you get it. You never expected this money, so saving it won’t be difficult.

  • Option B:

You take the full amount and spend a week at a resort, sipping margaritas at a swim-up bar. You never expected the money, so spending it isn’t actually cheating on your budget. And besides, bonuses are for treating yourself.

Most of us just picked Option B.

Why? Because we tend to place greater importance and value on pleasurable activities that arrive sooner, rather than later.

The immediate reward of a relaxing trip is enjoyable, so it becomes an emotional priority. With retirement further away than the next few months we tend to justify not saving the money by telling ourselves we can catch up in the future.

In other words, we want to feel good now, not later. This is emotional spending.

The Fear of Loss

Fear of loss is often a stronger emotional pull than the sense of progress associated with accumulation or achievement.

Do you love your car? I mean really love it?

Due to emotional spending, we often attach emotional bonds to inanimate objects, like vehicles, because they are involved in our lives on a daily basis.

The difficulty comes in when we start making poor budget choices based on those emotional bonds. If your car has a chip in the windshield, it’s off to the garage for a quick repair.

That’s a wise choice. But what if your vehicle is constantly in the garage? What if you’re spending more money on repairs than the car is worth…because it’s your ‘baby’?

Because you’ve emotionally invested time and energy into the car, in addition to the financial expense, it’s easy to continue spending money to keep it in working order.

You might even tell yourself that you ‘have no choice,’ alleviating some of the associated guilt.

In this scenario, the smarter financial decision is to sell the car and look for another, more cost-effective vehicle. But the decision to walk away from something you’ve spent so much time on is not easy.

It can be intimidating, painful, and even make you feel irrational. The real damage to your budget, however, is to keep putting money into something simply because you’ve done so in the past.

How to Avoid Emotional Spending and Stick to Your Budget

Emotional spending ruin budget1. Automatic Payments

Whenever possible, look for ways to set up automatic payments or contributions to savings funds.

By setting up automated bank transfers you’ll be reducing the emotional tug-of-war that can make you change your mind. And you’ll be surprised how easy it is to stick to your budget this way.

Related: 5 Ways to Automate Your Savings and Save Money Faster

2. Don’t Be Afraid To Ask For Help

Too often, as women, we push through challenging situations for fear of being thought of as weak. But the reality is, asking for help when you need it demonstrates real strength.

Not everyone is good at everything. I’m good at money, for example, but I’m useless when it comes to home repairs (so, I’ve filled my phone’s contacts with resources for fixing everything from leaky pipes to installing a new roof).

Delegating will save you time and money in the long run.

Reach out to people who have knowledge, experience and objectivity to help you weed out the bad financial choices from the good ones.

Financial advisors are one option but don’t forget to check out online resources like MoneyNuggets. Authority websites and forums offer a wealth of no-cost information, helping you make smarter money choices.

3. Wait a Day

The best way to avoid making poor money decisions is to wait a day before doing so. When you find yourself considering a significant purchase, investment, or other financial expenditure, walk away and get out your notebook.

Make two columns – one “Pros” and one “Cons” – assigning everything you can think of about your potential decision to one of the columns. Be sure to include emotional comments like how it makes you feel.

The following day, review your list. You’ll gain insight into what your motivation is and be better equipped to determine whether or not you’re making a financial choice from an emotional place.

One Financial Step at a Time

Whether you’re saving up to make a significant purchase or trying to pay off debt, taking control of your money can seem overwhelming at times.

Don’t get discouraged. Remember, you don’t have to do it all at once. Take it one day at a time – one hour at a time, if you’re really struggling. You’ll get there. I promise.

To paraphrase an old saying, even the biggest financial journey starts with a single step.

Over to You

Do you make emotional financial decisions? Or have you found a way to keep your feelings out of money matters and overcome emotional spending? Share with us here!

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7 Comments

  1. ‘Wait a day’ is a great tip. We encouraged our son to do that when we took him to America at 5 years old. Knowing that he could spend his money on anything he wanted as long as he waited till the next day (we were going everywhere twice) made such a difference.

  2. I agree with all of these points. I think that the most relevant one for me would be wait a day. I am so guilty of impulse buying when it comes to large purchases. (Hubby helping out)

    1. Jayne, you are not alone, most of us are guilty of impulse buying. We’ve have all done it at some point in our lives. A new study revealed more than half of British consumers admit to making impulse purchases they didn’t plan on making whenever they go shopping.

  3. I am a lot better with money now than before but I can definitely identify with emotional spending. When I was feeling low buying clothes would make me happy but obviously it does create a lot of money spent rather than saved over time x

  4. Loved these tips, I’m really trying to get a grip on my finances and am not too bad but prone to the odd splurge, especially with the unexpected bonuses!

  5. Great tips. I’m sure these will help lots of people. 😊

    1. Hi Leandra, thank you for taking the time to leave your comments. I am glad you found the post useful.

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