How your psychology affects your spending habits

It’s no secret that most Americans are in debt, but most people don’t realize how closely their spending habits are linked to their psychological makeup. There are many factors that influence our spending behaviors—some of which we may not even be aware of. Learn more about the psychology of money and how it affects your financial decisions, as well as how you can change these behaviors to be healthier with your finances.

The Importance of Understanding Your Spending Psychology

Understanding how and why you spend money is one of the most important things to do when trying to get your finances in order. According to Consumer Reports, just knowing where your money goes each month can help you save. For example, some research shows that consumers who identify themselves as impulse buyers end up spending significantly more over time than those who shop for value. While not everyone is an impulse buyer, understanding what drives you to spend or save can be helpful when getting a handle on your finances.

The Dangers of Comparing Yourself to Others

When we see another person who has a lot of money, it’s natural to think that they must be happy. However, it’s also possible that these people might not be living any better than you. In fact, it might be possible that they are suffering more than you because they feel pressured to keep up appearances and acquire even more wealth. Remember: You don’t need to have money in order to live a rich life. The truth is that once you get past a certain level of income, increasing your earnings doesn’t make much difference when it comes to happiness. Instead of focusing on how much money other people have, focus on how much time you can spend with friends and family members—and remember that true wealth is measured by experiences rather than material possessions.

How Our Emotions Affect Our Spending Habits

We are bound to certain actions by our emotions. When we are sad, sometimes we spend money on items that provide a temporary pick-me-up. Even though our rational minds might know better than to use retail therapy, we often succumb to it when we’re feeling blue. Our shopping sprees don’t have to be drastic and they can actually be very subtle, but they occur more frequently during negative emotions such as sadness or anger.

Do You Have Impulse Control?

When it comes to how we spend our money, a lot of factors come into play. Do you have trouble controlling your impulses when it comes to buying things? Or do you have a strict budget that you adhere to? Both are acceptable, but certain people are predisposed toward one or another. If you find yourself struggling with impulse control and overspending, try avoiding stores altogether until you’ve gotten yourself under control. It’s hard to resist a sale if you can’t see what’s on sale in the first place!

So Now What?

With a few powerful tools in place and some practice, most of us can get on better financial footing. Now we just need to figure out how to stay there. If you’re guilty of creating a new savings goal as soon as you reach another, take time now to reflect on your goals and make sure they’re realistic and achievable. There’s nothing worse than creating a new goal only to have it fall by the wayside later—it’s important to stick with them!

The Psychology behind Budgeting

Humans are notoriously bad at estimating how much money they spend. A study by a Pennsylvania-based financial counselor showed that 90% of Americans have trouble keeping track of their spending. If you’re not tracking your budget, it’s highly likely that you’re wasting money on items that you don’t need. The best way to avoid overspending is to create a budget and stick to it. This can be done with pen and paper or through an app like Mint or Quicken. These tools will help you keep track of your spending and give you real-time feedback about where your money is going each month.

Saving Tips For Those Who Struggle To Save Money

Saving money can be hard. But according to a 2013 survey by Bankrate, over one-third of Americans have absolutely no emergency savings at all. For those of us living paycheck to paycheck and struggling to put food on our tables each month, it’s more than likely that many people don’t know where they will find $1,000 in an emergency situation. Still, there are ways we can get around our psychological barriers and save some cash. Here are a few ideas:

1) Write A Budget That Fits Your Lifestyle: While budgets might not always be fun, it is important to make sure you’re spending less than you earn every month. To do so, you need to figure out how much money you actually bring home after taxes, then allocate funds for housing expenses (mortgage or rent), utilities (electricity and gas), transportation costs (gasoline), insurance premiums (health and car) as well as groceries. If anything is left over at the end of the month, congratulations! You’ve saved some money. If not, look into cutting back on nonessential items like cable television or eating out once a week. Or maybe even both!

2) Make A Separate Savings Account And Set Up Automatic Deposits: The easiest way to build up your savings account is by putting away a little bit of money each month. To start, open up a separate bank account and call it something catchy like Saving for Vacation Fund or The Emergency Fund. Once you have enough cash in there to cover any unexpected emergencies, increase your monthly deposit amount until you reach your desired goal amount—whatever that may be.

3) Use Cash Instead Of Credit Cards: It’s been proven time and time again that using credit cards can make us spend more than we actually have on hand. In fact, a study by Harvard Business School found that people who paid for their purchases with cash spent less money overall than those who used credit cards—even when they had access to an unlimited amount of cash. The reason? When you use a card, you don’t feel like you are spending real money, so it becomes easier to splurge or overspend without even realizing it.

Final Words On Why Learning About Psychology Matters In The Quest For Financial Success

The Only Thing That Really Matters in Finance and Investing: When it comes to investing, people want to talk about stock picks and market analysis and other financial topics. While these things are important, they don’t hold a candle to an investor’s psychology. If you can’t control yourself, it doesn’t matter what kind of investment strategy you have. You won’t be able to make smart decisions if you can’t rein in your emotions. Your ability to stick with a plan over time is directly related to how well you understand yourself and how well you know how emotions affect your decision-making process. Remember that there is no magic formula for success; only hard work, dedication, and determination will help get you where you want to go financially. There are no shortcuts; there is only hard work and sacrifice.