What Drives Us To Spend Too Much?

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Behavioral economics provides some insights as to why we go over budget. There are some surprising ways in which our emotions and thought patterns guide us towards to our overspending. Here are some reasons as to how and why this happens.

1. Retail Therapy

Even I am guilty of this one. Retail therapy is a confirmed psychological thing. We often spend money on items for temporary happiness in way to self-regulate our mood. It is often associated with no behavioral control and high impulsivity. There is a silver lining- retail therapy is not all that bad. According to studies conducted on retail therapy and concluded there are potential mood benefits. There seem to be positive consequences to buying oneself a small treat (Atalay & Meloy, 2011).

2. Cognitive Dissonance 

A popular psychology theory; cognitive dissonance occurs when our beliefs, attitudes and thoughts are inconsistent. This leaves us feeling discomfort and as humans, we act upon on it by alternating our attitudes, beliefs or behaviors to reduce this discomfort. 

An example would be "Wow, I spent way too much on this top, but it was on sale." This is an example of someone feeling guilt for splurging money they did not have. 

3. Trendy

Societal factors is a quite common reason- it is almost impossible to deny that the latest trends are very much valued as well as easily pressured onto us if our willpower is low.  People often feel the need to keep up with the most modern technology such as buying the latest iPhone regardless if their phone is in perfect working condition. It is the idea and the natural feeling of having the next big thing that drives us to make these unnecessary purchases. Those who suffer low self-esteem, easily fall into this vicious cycle of staying "on trend."

4. Credit Cards

Are you guilty of using the, "It's okay, I can just put it on my credit card" line? Chances are that you are. A credit card provides consumers abundance of benefits and perks to be consistently used. The great downfall of this idea is that we spend money we do not have. This can be easily avoidable if you develop a habit if you opt for using cash instead and saving the credit cards in case of emergency OR when you know for a fact you can afford your purchases.

5. No budget 

Or the reason you are spending too much is because you simply do not have budget. This is the easiest mistake in the book you can make. I personally use an excel sheet to create my budget and then do some simple math to find out how much I make per month, then lay out all of my monthly/yearly expenses (eg. rent, utilities).

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The reasons above are not to prevent you from splurging or treating yourself.  It is simply an invitation for you to be more self-aware on how much you are spending. So remember, be more mindful for any overspending you participate in. Moderation is key!


References:

Retail therapy: A strategic effort to improve mood

A. Atalay-Margaret Meloy - Psychology and Marketing - 2011