The Psychology of Spending Money

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Man counting the bills in his wallet, debating whether to spend his money

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In a perfect world, we'd all avoid too much credit card debt and would never have to deal with the desperation of being unable to meet our credit card payment obligations.

We'd never have creditors hounding us for payment or be worried about late payment fees and credit score damage. We'd never know the frustration of not being able to afford what we want because every extra cent has to go towards keeping up with the minimum payments on our credit cards. Unfortunately, these distressing situations are the norm for many people. The good news is there are things you can do to put a more positive spin on your finances.

Understanding why you spend the way you do is a step in the right direction. When you know the psychology that motivates your financial decisions, making the right spending choices becomes easier.

If you're struggling with keeping credit card debt at bay or staying within your monthly budget, here's how to rein in your bad spending habits. 

Focus on Your Spending Triggers

An important aspect of debt that isn't always addressed is why you got too deeply into debt in the first place. Ask yourself: What were some of your reasons for spending on items that you may not have been able to afford? Remember: The goal isn't to beat yourself up. The goal is to understand deep inside your motivations, intents, and feelings, so you can have a better self-awareness that you can use to direct your behavior better in the future.

Keeping a spending log and taking note of your moods can help you pinpoint what is behind some of your decision-making. Identifying the triggers that stimulate the urge to spend can be uncomfortable. However, doing so may help you change your narrative with yourself and set a healthier code for your behavior towards your financial security in the future and your wellness.

Make the Switch From Credit to Cash or Debit

One negative aspect of using credit cards instead of cash is that it sometimes can feel like you aren't spending real money. Sometimes, the pleasant feelings we experience when making a purchase are disconnected from the unpleasant or painful feelings of making the payment upon receiving the credit card statement. That disconnect can lead to overspending on credit if we don't have to face any financial consequences until later. 

Putting your credit cards on ice temporarily and using cash, check, or a debit card doesn't provide that same delayed response. Spending cash can be particularly powerful since you actually see the money leave your hands. You don't need to cut up all of your credit cards for good, but using cash or your debit card for a month or two may help give some perspective on how much you're truly spending. 

Even better: You might consider a no-spend week. With a no-spend week, you commit to only spending money on essential expenses, such as housing, food, utilities, and necessary transportation costs. Taking a break from extra spending, even for a few days, may give you a fresh perspective on where your money is going.

Reexamine Your Money Mindset

To really control your spending and any credit card debt, try to think about what money means to you. That includes how you interact with money and what beliefs and attitudes you have about it.

Your parents' attitudes and behaviors with money growing up can also influence the decisions you make. If your parents weren't strong financial planners or were frequently behind on bills, those behavior patterns may seem natural to you. Recognizing those behavior patterns and where they come from is an important step in working to create healthier financial habits.

For some people, it may help to remind yourself daily that your worth as a person has nothing to do with how much money you have. Once you truly believe and understand this, and you break any connection between money and your sense of self-worth, you may be able to open up the psychological barriers that were keeping you from living your strongest financial life.

Get Educated About Money

There are hundreds of books, magazine articles, and Internet sites about getting rid of credit card debt. Some of them offer good advice about the psychological aspects of money and spending.

Spending time reading and learning about money is a wise investment. The more you learn, the more you may be able to understand your own habits, and the better positioned you are to create a framework for correcting them. Whether you're reading books, blogs, or personal finance sites, focus on the actionable takeaways that you can apply to your spending situation.

Focus on Solutions

Credit repair and debt reduction programs can help you get your debt under control, but they may only be effective to a certain point if you're not addressing the larger financial issues that got you into debt in the first place.

If psychological factors influence your spending, credit reduction programs will treat only the symptoms, not the root cause. Working on the psychological aspects while taking steps to reduce debt will greatly increase your long-term success.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.

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