Money is not just a means of transaction anymore, it is a complicated web of feelings, actions, and habits. Our psychological composition frequently affects our financial decisions, causing us to make both rational and irrational purchases. Making smarter decisions and achieving financial stability require an understanding of the psychology of money. Today, we are on a mission to decode the connection between spending and emotions by examining personal experiences.

To many, money is their biggest love and their worst enemy. This perfectly captures the paradoxical relationship they have with money; their experiences are prime examples of how emotions can impact financial behaviour.

People acknowledge that their spending often reflects their emotional state, making it an emotional release valve during stressful times. Happy, treat yourself to a nice spa day; sad, go buy a new makeup product. No matter the emotion, people somehow find a way to throw money at the situation. Their state is not unique; many individuals find themselves on a similar emotional rollercoaster when it comes to finances.

Emotions and spending are intertwined in various ways. Here are some key aspects of the psychology of money —

Emotional spending

When we spend money to ease or celebrate our emotions, this is known as emotional spending. This kind of spending, whether it is "retail therapy" after a difficult day or treating oneself, might result in a dangerous financial situation. Emotional spending is frequently impulsive and never brings lasting satisfaction.

Retail therapy

The term retail therapy is widely recognised and often involves purchasing items to improve one's mood or alleviate stress. However, it's a temporary fix that can lead to buyer's remorse once the emotional high wears off.

FOMO (Fear of Missing Out)

In the era of social media, FOMO plays a significant role in spending. Seeing friends and influencers flaunting their lavish lifestyles can trigger envy and a desire to keep up, even when one cannot afford it.

Financial avoidance

On the flip side, some individuals avoid dealing with their finances altogether because the thought of money induces anxiety. Ignoring bills, avoiding budgeting, or not saving can have severe long-term consequences.

There are quite a few strategies that you can try to make better financial choices —

Budgeting

Make budgeting your best friend. It is a road map for your finances. Start planning your budget even before the next month starts. That will help you follow the spending better as you will be aware of how much money is allocated for what. 

Delay gratification

Practising delayed gratification can be a powerful tool against impulsive spending. If you see something you want, wait a few days before making the purchase. This allows you to assess whether it is a genuine need or a fleeting emotional desire.

Seek support

If you have tried everything and are still struggling with planning your finances, then you must seek support from an expert.