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How to identify and break emotional spending habits

Manvi Agarwal
·4-min read

Do you tend to shop when you are unhappy?

Do you sometimes spend money you don't have?

Do you end up buying things you don't need?

Well, don’t worry, you are not alone. A recent survey revealed that more than 90% of people do this. More so now, in this day and age of online shopping and credit cards, where spending money is just an OTP away. And truth be told, doing this sometimes is not an issue. The problem arises when it becomes a habit, an outlet for dealing with issues.

But how can spending Rs 3,000-5,000 a month harm you, right? Firstly, it does not affect your budget drastically, and it helps you deal with issues.

Well, if you were to calculate the total outlay over a year, this method of dealing with issues can easily cost you anywhere between Rs 30,000-50,000. A lot more if you were to save and invest it.

If you were to invest this money in the stock markets for the long-term:

Over time, with the power of compounding saving as little as Rs 2,000, every month can multiply into a whopping Rs 22,00,000 in about 25 years. I am sure this will encourage you to curb the habit of emotion-driven spending. A great starting point to break this habit is to identify all the triggers that lead to it. It will only enable you to nip them in the bud.

Don't forget that it is your hard-earned money. Money that you can put to better use, that you can use to repay your debts, to fund your financial goals and to effectively, lead a stress-free lifestyle.

Common triggers include:

Jealousy: “My friend just got back from a 20 day trip to Finland.”

“My cousin just treated himself to this new fancy car.”

It is the feeling where you have to keep up with the people in your social circle. Be it in the form of a luxury vacation or a new fancy car that you can't afford.

Guilt: “I couldn't say no to that kid's face, I had to buy it.”

“I had to buy something from my friend's store.”

A lot of people admit purchasing products or services just out of guilt or social pressure.

Racking up credit or spending more than you can afford is never a wise decision, based on feelings of jealousy or guilt.

Try to keep such emotions at bay, especially if you want to achieve financial freedom at an early age.

And so anytime you feel such emotions surfacing, distract yourself. Don't act upon it immediately. Wait it out and let it sink in. Make it harder to spend. Use cash instead of cards as it is known to be a big de-motivator to spending. Work on a cost sheet to see how it affects your financial plans. Try to keep some cash aside and see how you feel.

Sadness — “I am feeling low.”

Happiness — "I got a raise, I must celebrate.”

By now, the notion of retail therapy is prevalent and unfortunately, deeply rooted in nearly everyone's mind, to the extent that it has become a modern cliche. But in fact, it is one of the few ideas backed by actual scientific evidence. So if you feel the urge to shop at such times, don't blame yourself.

Research indicates that the brain equates buying/owning with a sense of achievement, which peaks when you are shopping the sales. No wonder, you feel better.

The same method of distracting yourself applies here as well. Let the moment pass. The idea is to trick your brain into thinking otherwise.

But if you are unable to do this, set some money aside for such situations. Financial experts highly recommend that you make room for fun expenses in your budget. This way, you can cap your expenditure while staying on track with your budget. So at such times, when you can't resist, consider withdrawing from your 'FUN fund'.

Trend related overspending

As tempting as it is to stay in trend, it is not worth it if it upsets your financial life. People often spend on products and services to be on-trend. And while this isn't entirely unreasonable, it does not absolve you from spending money you don't have or from buying things you don't need.

The mere acknowledgement of such emotions is a big step in itself as it goes a long way in eradicating the bad habit from its roots.

The ideal way to overcome reckless emotional spending is to develop a prudent budget and stick to it.

An efficient budget serves as a fantastic guiding post for your spending, leaving your emotions powerless. It pushes you to re-focus on your financial goals. On the off-chance you fail to adhere, a budget will alert you that you are not putting away enough for a financially secure future.

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