The key to stop spending too much money is to create better spending habits in your daily life. Spending habits are just that…. spending “habits”.
Changing Spending Habits
We all work to improve our financial situation, repay debt, and better manage our money. Just like most New Year’s resolutions, we tend to start enthusiastically, then gradually fade as the months go on. We’ve learned that the secret to keeping a resolution is to change our habits for the better.
It’s not enough to want to improve your financial situation. You also need to change habits that are preventing you from being successful and nurture better habits that will make it possible to affect permanent change.
Starting now, we’d like to encourage you to think about bad spending habits that can be changed, and new habits that can help improve your financial standing.
Every single day, you have the power to make decisions that will move you forward financially or set you back. Knowing your strengths, trouble spots and tendencies is the key to using them to your advantage.
Why is it hard changing spending habits?
Over time, it becomes more and more difficult to change a habit because that habit has become more and more natural to who we are and how we act. Research shows that we automatically favour what is familiar to us – even if we know it’s not to our benefit. The challenge is creating a new normal, which involves behaviour change. So, how can you go about identifying your “good” spending habits, or purchases you make that add value to your life, and “bad” spending habits that you might regret or make you feel as if you’re taking a few steps backward? Here are some questions to help sort out your good spending habits from the bad ones.
Is it helping build wealth?
Sometimes spending on things that increase your wealth can be unpleasant, or to put it towards your loans instead of saving for an adventure feels like you are entering snoozeville. But down the line, you’ll have funds to help you build your financial freedom. Having a well-oiled machine in place to potentially make money without too much effort is pretty amazing.
Does it make you happy?
While some purchases may give you a quick thrill, there are some things you spend your money on that spark happiness. The questions you need to ask yourself is, “is this purchase going to give you the temporary feels, or will it add to your overall well-being? Sometimes, giving yourself some breathing room rather than making an impulsive purchase will help you gain some clarity.
By taking a closer look at what you buy to see if it’s in line with your values and goals for the long run will help pinpoint the good spending habits from the bad ones. By being honest with what you genuinely love – no matter how off the grid it may be – you’ll be able to focus on spending on the things that are essential to your happiness.
Psychology of spending habits: What makes us spend money?
Things that make us want to spend money #1 Delayed Reward Discounting
If you choose to treat yourself with something you see in a shop that you really want instead of saving for the holiday of a lifetime, you’ve just felt the effects of the psychological phenomenon called “Delayed Reward Discounting”, where your brain automatically chooses smaller, more immediate rewards over larger rewards that you have to wait for.
Learning to fight against this phenomenon is crucial to forming good money habits. At it’s core “Delayed Reward Discounting” is all about impulse control and making sure you make sensible – not irrational – money decisions.
Things that make us want to spend money #2 Scarcity
Things that make us want to spend money #3 Social pressure
You’re out shopping with friends. You’ve set yourself another budget, but your friends want to stop for a coffee and lunch while you’re out. Getting coffee and lunch would put you well over your budget for the day.
Do you stay for coffee and lunch? if you said yes, you are not alone. Our brains are designed to help us fit it – in fact, some psychologists call this the herd instinct – and sometimes, that makes us spend more money. In fact, it’s not uncommon for us to completely overspend when we’re with other people because we naturally start to mimic their behaviour.
Things that make us want to spend money #4 Anchoring
Another psychological principle that causes people to overspend is known as “anchoring”, which involves how people evaluate price points when making decisions about purchases.
For example, say you’re shopping for an item with a purchase price of $100. However, that item was marked on sale for $50. It’s likely you’ll focus on the initial price of $100 (the anchor) and therefore consider the new price of $50 a great deal – even if it isn’t. The original price might have been inflated, or you might not really need to spend the money in the first place. By concentrating on the anchor, we are actually thinking more about the $50 we are saving rather than the $50 we are spending. Try being aware of this next time you are tempted. It’s not a saving if you are removing money from your budget.
Learning how to stop spending money is hard, But it is possible
It takes time and dedication to stop overspending and to reform your spending habits, and every now and then the urge to swipe your card will rear its ugly head. This happens to all of us, so don’t be too hard on yourself; no one can completely reform their bad habits overnight. Once you make a conscious decision to stick to your budget and you set some goals and safeguards in place, in time you’ll become a savvy consumer who knows how to stop spending money and use it wisely instead. Making and sticking to a budget every single month is what’s going to help.