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Psychology of Spending: How to Better Spend Your Money

The psychology of spending is about better understanding your relationship with money and the motivations that cause you to spend.

Have you heard about the psychology of spending?

The psychology of spending delves into the complex factors that influence our purchasing decisions, shedding light on the subconscious drivers behind our financial behaviors. Understanding this phenomenon is crucial for achieving financial success and mastering mindful money management.

Answer these questions: Have you wondered why you made a purchase you didn’t want or need? Why did you buy one brand over another? Why did you use credit for the purchase?

You may hold money beliefs that influence how you spend your money. These influences are often stirred by marketing, social relationships, and spending habits.

The psychology of spending is about better understanding your relationship with money and the motivations that cause you to spend.

Here are two factors that often impact your spending:

Keeping up with the Joneses—Making purchases based on what others are buying. Remember, when you’re keeping up with the Joneses, you’re not living your life but trying to copy theirs.

Advertising—Commercials and advertisements compel us to buy things for various reasons. These ads appeal to our desire to improve our lives, make us feel sexier, or increase social appeal.

Mindful versus Habitual Spending

At its basic definition, spending means paying money for things and experiences. Spending habits are regular practices that are hard to give up or change and can be done subconsciously (aka, you’re not aware you’re doing them).

Let’s break down the difference between mindful and habitual spending.

  • Mindfully spending is when you know how and where you spend money. You know your choices and notice the signs of bargain shopping and the lure of one-day sales.
  • Habitual spending is automatic and often without thought. You’re spending because you’ve been programmed to do so. And often, we don’t question these purchases because they are ingrained into our everyday life.

Spending habits begin early and are influenced by how family and friends handle their finances. Basically, how other people’s spending habits can influence your spending on a subconscious level. I explored this concept through the ACT Process in my book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life (get your copy on Amazon here).

Unraveling the Psychology of Spending Habits

At its core, the psychology of spending encompasses various cognitive, emotional, and social factors that shape our relationship with money and consumption. From societal influences to individual personality traits, several elements contribute to our spending habits:

  1. Emotional Triggers: Emotions play a significant role in driving spending behaviors. Whether it’s seeking comfort through retail therapy or succumbing to the thrill of an impulse purchase, our emotions often override rational decision-making when it comes to spending.
  2. Social Norms and Peer Pressure: The desire to fit in and maintain social status can lead to spending patterns influenced by peer pressure and societal expectations. We may feel compelled to keep up with friends or colleagues regarding material possessions, even if it means stretching our finances beyond their limits.
  3. Cognitive Biases: Various cognitive biases, such as anchoring bias, framing effect, and scarcity mentality, can distort our perception of value and influence spending decisions. These biases often lead to suboptimal financial choices, as we rely on mental shortcuts and heuristics rather than objective reasoning.
  4. Marketing and Advertising: Marketers leverage psychological principles to craft persuasive messaging and design compelling visuals that appeal to consumers’ desires and aspirations. From scarcity tactics to social proof, advertising tactics subtly manipulate our subconscious minds, driving us toward purchasing certain products or services.

Harnessing Psychology for Financial Empowerment

Armed with knowledge of the psychology of spending, individuals can take proactive steps to improve their financial habits and achieve greater financial well-being. Here are some actionable strategies to leverage psychology in pursuit of financial empowerment:

Step 1: Develop Emotional Awareness

Practice mindfulness and emotional awareness to recognize the underlying emotions driving your spending habits. Before making a purchase, pause and assess whether your decision is driven by genuine needs or emotional impulses.

Engage in alternative coping mechanisms, such as exercise or creative expression, to manage emotions without resorting to retail therapy.

Step 2: Set Clear Financial Goals

Establish specific, measurable financial goals that align with your values and priorities. Whether it’s saving for a down payment, paying off debt, or building an emergency fund, having clear objectives provides focus and motivation to resist impulsive spending temptations.

Step 3: Create a Spending Plan

Develop a realistic budget that allocates funds towards essential expenses, savings, and discretionary spending.

Consider implementing the 50/30/20 budgeting rule, allocating 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment. Track your expenses diligently and identify areas where you can cut back to align with your financial goals.

Step 4: Practice Delayed Gratification

Cultivate the habit of delaying gratification by implementing a 24-hour rule for non-essential purchases. Instead of making impulsive decisions at the moment, give yourself time to reflect on whether the purchase aligns with your long-term goals and priorities.

Step 5: Challenge Cognitive Biases

Be vigilant of cognitive biases that may distort your perception of value and influence spending decisions.

Counteract these biases by seeking alternative perspectives, such as reviews, conducting research online, and evaluating purchases based on objective criteria rather than emotional impulses.

Step 6: Curate Your Environment

Surround yourself with positive influences and minimize exposure to triggers that promote excessive spending.

Unsubscribe from marketing emails, unfollow social media accounts that promote materialism and opt for experiences that enrich your life rather than accumulate more possessions.

Step 7: Practice Gratitude

Cultivate a mindset of gratitude for the resources and opportunities in your life. Regularly acknowledge and appreciate your blessings, whether it’s supportive relationships, good health, or personal achievements.

Gratitude fosters contentment and reduces the desire for material possessions, leading to more mindful spending habits. Remember, the key to financial success lies in managing money and understanding the intricate workings of the mind.

An Exercise

Let’s do an exercise. Take a sheet of paper and divide it into two columns. Write “Good” in one column and “Bad” in the other. Then, list your spending habits into two categories: Good and Bad. Take time to think about each purchase. This isn’t an exercise to shame or blame. The goal is to increase your awareness.

1. List the good and bad spending habits

Be as specific as possible. Don’t make any judgments as you list your habits.

Good habits may be saving for an emergency fund, paying off credit card balances in full each month, carrying no debt, or paying off bills on time each month.

Bad habits may include borrowing money from family or friends, keeping credit cards up to the limit, or eating out every night.

2. Determine the emotion behind the spending

To help you gain a better understanding of your spending psychology, do the following:

  1. On a separate sheet of paper, write down the conditions that cause you to continue the bad money habits and how often the habits cause grief.
  2. Determine what you can do to change. Write down ideas.
  3. Create a plan or process to stop the habit.

Figure out what is causing the bad habits to continue and the level of influence it has on the quality of your life. Take time to really assess the reasons behind the habits.

Answer these questions: do you spend money as a form of retail therapy? Do you feel down so you go shopping? Are you socially spending to keep up with your friends and overspending on goods to make you fit in?

If the answer is yes to one or all of these, then ask yourself what you can do to be more aware of these spending habits when they arise.

Could you ask yourself, “Do I really need to make this purchase today?”

A simple questioning of the purchase may be enough to break your unconscious spending habit.

Mindful spending, rooted in the psychology of spending, transcends mere transactions. It’s a practice that involves conscious awareness and intentionality in our financial decisions.

It’s about understanding the motivations behind our purchases, recognizing their impact on our well-being, and aligning our spending with our values and priorities.

Understanding Mindful Spending in the Psychology of Spending

Mindful spending is crucial in the psychology of spending for several reasons:

  1. Awareness of Triggers: Mindful spending involves understanding the psychological triggers that drive purchasing behavior. Whether it’s emotions like stress, boredom, or social influences, recognizing these triggers empowers us to make more intentional decisions about when and why we spend money.
  2. Evaluation of Value: Mindful spending prompts us to evaluate the value of our purchases beyond their monetary cost. It involves considering factors such as durability, utility, and alignment with our values to determine whether a purchase enriches our lives or provides temporary gratification.
  3. Prevention of Impulse Buying: Practicing mindfulness makes us less susceptible to impulse buying and frivolous spending. Instead of acting on fleeting desires or societal pressures, we pause to reflect on whether a purchase contributes to our long-term well-being and financial goals.

Take a Pause: A Simple Tip to Mindfully Spend

Due to my past spending habits, I had to take drastic measures to curb my spending. I used a pausing technique. I would ask myself three questions for any purchases I make.

These simple questions are:

  1. Do I need it?
  2. Do I need it now?
  3. What will happen if I don’t get it?

I want you to ask yourself these questions sequentially from 1 to 3 when you’re about to make a purchase, small or large. Pay attention to your answers.

If you answer yes to #1, then ask question #2. Answering “yes” on #2 requires you to then ask question #3.

Asking these questions gives your mind a moment of pause. This can be enough to think through the emotions behind the spending.

The next time you feel compelled to purchase, try this 3-part questionnaire.

You can also read more about this in my book, You Only Live Once.


Every day, we are faced with hundreds of choices, and it is impossible to consciously think about all of them. Spending habits are easy to develop, but they are not always beneficial.

Financial situations often change, and what once was affordable may no longer be.

The basic premise of the psychology of spending is understanding why we spend the way we spend.

When you’ve figured out your spending habits, you can strengthen your good habits with rewards.

You can also create a plan to break bad spending habits by making small adjustments in how you use your time, surf the internet, scroll through social media, and what emails you receive that can affect your spending habits.

Want to read a book to help you with your spending habits? Read my recent book, Happy Money Happy Life (available on Amazon), which explores how the brain’s wiring impacts our relationship with money—and what you can do to make the changes to reign in your spending on non-value-added purchases.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of and His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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