How One Brain Chemical Can Lead to Bad Financial Decisions

Our brain is a funny thing. Although we think our decisions are our own and solely made up of free will, our subconscious brain sits in the pilot chair more often than we know.

Neurotransmitters like dopamine, which will make you feel happy and motivated, are released when you treat yourself. It’s why they are called happiness drugs, after all. The bad news is it also works on spending money on the nice things in life. Being pleased this way can create a feedback loop that leads to overspending. This will prevent your wealth from building and can even put you in serious debt.

You can navigate around this fact by setting yourself up a system of automated money transfers and budgets. You still can treat yourself but also meet your saving goals consistently and long-term.

In this piece, I will explain the issue behind it further and provide a system that will help navigate it.

What are we talking about

Dopamine is a neurotransmitter released by our brain when we get rewarded in any way. It’s mostly by a pleasurable action like having your favorite food, performing your hobby, or listening to some good music.

It makes you feel happy, enthusiastic and increases your well-being as one effect. On the other side, it’s affecting your motivation and stimulates you towards getting rewarded again.

If you do something you like or accomplish something, the dopamine system will provide you a pleasure boost and stimulate you to repeat this act by increasing your motivation.

As our brains are constantly learning, this action-pleasure system can create a feedback loop that will subconsciously drive us towards similar actions again. This evolves into a problem when it comes to pleasing yourself by spending money on nice and shiny things.

Don’t get me wrong; there is nothing bad about treating yourself with that nice handbag or these fancy sneakers in general.

As you are inevitably falling back to your natural base level of dopamine, the pleasure boost wears off rather quickly. That high when you put on those shiny sneakers, the first time becomes casual after the third time you are wearing it.

So taking too much pleasure out of spending will become wrong when repeated time after time to keep your dopamine high. Having your spending always on your earnings level or even succeeding means to eat up your savings and make debt in the long term.

The bad news is, you can’t really escape your nature.

I don’t want to take this information as an excuse for overspending, nor should it make you feel helpless and surrendered to your nature. I want you to feel empowered to build a financial system that fulfills your needs and lets your wealth rise over time.

To increase your wealth, your earnings have to exceed your spendings consistently.

One crucial part of this system is the mindset to save before you spend. Figure out a spending rate you can afford and act as one main pillar of wealth building. Let’s continue with a savings rate of 10% of your monthly paycheck.

You can set up an automated money transfer order, which will withdraw 10% of your paycheck to a separate savings account on payday. By this, the saving will feel just like another bill you are paying. By putting the money into a separate savings account, will also be more out of sight.

Personally, I have a savings account from which I can’t withdraw money, nor do I have a debit card for it. The only way to get money out is to request a withdrawal to a reference account, which is my checking account. This process needs about 3 to 4 days to be done. This makes me think twice about spending my savings on a treat and assures that I really want something before putting on this extra work.

The Takeaway

Your dopamine system will reward you with happiness in accomplishing a task or treating yourself. What gives you a short-term happiness boost can have opposite consequences in the long-run when it comes to bad financial decisions like overspending.

Make sure you save before you spend and set up a system that will make it harder for you to respond to these short-term treats. This way, you can watch your wealth rise and also can treat yourself from time to time.

Best Wishes.

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This article is for informational purposes only and should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions