Understanding how emotions can drive spending

Have you ever tried to cheer yourself up by buying something new?

Sometimes people buy things out of desire or boredom, or to try to lift their moods or celebrate a victory. These are examples of emotional spending. While an occasional indulgence is generally not a problem, emotional spending can be risky because you may easily spend more than you can afford. Since there is a strong emotional component to our spending habits, it’s important to recognise and curb emotional spending.

The connection between how you feel and how you spend

Managing your money isn't just about budgeting and tracking your spending. It's also about understanding your relationship with money. Spending is often driven by habits that we may not be aware of or that we learned while growing up. And these habits are frequently fuelled by emotions, which isn't always healthy for your emotional or financial wellbeing. For example, if money was tight when you were young and your parents struggled to cover the basic necessities, the fear from your past experience of not having enough money may cause you to follow that same pattern now.

The following questions may help you understand your own relationship to money.

• Do you frequently buy yourself "treats" when you're feeling down?

• Does rewarding yourself for accomplishments typically involve spending money?

• Do you sometimes buy things you really want but cannot afford?

• Do you save money even to the point of depriving yourself of simple pleasures?

• Do you frequently go shopping out of boredom or for distraction?

• When you want something, do you typically buy it and worry about paying for it later rather than coming up with a plan to save for it?

Answering "yes" to any of these questions doesn't necessarily mean that you have a problem. Most people occasionally let emotions drive their spending. But your answers could be a clue for understanding your relationship to money and how your emotions can drive that relationship. If you did answer "yes" to some of these questions, you may need to think honestly about how often emotions drive your spending habits.

Curbing emotional spending

If you realise that you frequently engage in "retail therapy," or emotional spending, you can take steps to regain control of your money.

Track your spending for a week or more to really understand where your money goes. Many people spend much more money each day than they realise. Write down every purchase you make either in a small notebook or in your phone, especially small items, like a cup of coffee or a packet of chewing gum. Also write down how you were feeling at the time of the purchase. Even a word or two, like "bored" or "upset," can be helpful when you analyse where your money is going and why you are spending.

Learn to recognise the emotional "triggers" that cause you to spend. Go back through your spending log and have a look at how you felt when you made certain purchases. You may see a pattern emerge. For example, if you see that you were feeling lonely, bored, angry, or craving when you made purchases, then you'll know that these are your emotional "triggers."

Don’t allow guilt to persuade you. If a toy that your child wants or an expensive dinner with friends is not in your budget this month, it’s okay to say no. Staying in control of your spending does not make you an uncaring parent or a bad friend. This could be an opportunity for kids to learn self-control. And a good friend will understand that you’re there for them even if you aren’t able to attend the expensive dinner get-together. No one else can keep your budget on track except for you and there may be some tough choices at times but that doesn’t mean you won't indulge once in a while.

Impose a waiting period on any purchase that you don't really need. Force yourself to wait a week before making any purchase that isn't a definite need. You may find that by waiting a few days your desire to make the purchase has diminished.

Find alternative ways to satisfy the emotional needs that you are trying to fulfil by spending. For example, if you're in the habit of going out for an expensive dinner with your partner after a tough day at work, try a less expensive way to de-stress. You could cook a meal together at home instead. If you realise that you go shopping when you feel lonely or down, try calling a friend or exercising instead. You could make a list of alternative activities now, before the urge to spend sets in, that you can substitute for shopping when these feelings arise. For example: have a picnic in the park, go for a walk, or go to the library. Come up with other ideas, too.

Keep learning about managing your money. As you work to identify your emotional spending patterns, do all you can to manage your money wisely in other ways. For example, you can prepare a budget, develop a sound savings plan, and avoid financial scams. You'll find helpful articles at Moneysmart, the Australian government's financial guidance website.

Don't deprive yourself. Everyone deserves a treat once in a while. Just be mindful as to why you're spending and be intentional in your financial decisions.