How Your Brain Tricks You Into Spending More Money
When it comes to shopping, it’s far too easy for Americans to overspend. Whether it’s effective advertising or just pure emotions, people have a tough time keeping to their budgets and often regret their purchases. In fact, a 2017 survey found that spending money on non-essentials is one of the biggest financial regrets Americans have.
But overspending is not just an effect of clever marketing — your brain also plays a factor in encouraging you to spend more money than you probably should. But if you know which thoughts might trigger overspending, you’ll be able to recognize them as potentially harmful before you swipe your credit card.
Click through to see how you can stop overspending and dig yourself out of debt.
"I've got to have it now."
In an age of instant gratification and two-day shipping, patience can be hard to come by. But this is not your fault necessarily. In a study from Princeton University, researchers found denying instant gratification is just biologically harder to do because our brain clamors for the positive emotion, which we attach to what we can get in the present moment versus somewhere in the future.
“Our emotional brain has a hard time imagining the future, even though our logical brain clearly sees the future consequences of our current actions,” said David Laibson, an economics professor at Harvard. “Our emotional brain wants to max out the credit card, order dessert and smoke a cigarette. Our logical brain knows we should save for retirement, go for a jog and quit smoking.”
Solution: Delay gratification. According to Dave Ramsey, before you click add to cart, think about the future and evaluate if this is an item you’ll be using a month from now. “Nine times out of 10, the answer will be to put it back. But what if you still want it? Then you wait,” he wrote on his blog.
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"It will make me feel better."
Believe it or not, retail therapy is a legitimate thing. In a study cited by Psychology Today, researchers found that 62 percent of shoppers bought items to help boost their spirits, and another 28 percent made purchases as a way to celebrate.
Solution: To avoid overspending on things you don’t need, set limits for yourself within your budget. If you follow Elizabeth Warren’s 50-30-20 budgeting rule, you can allocate 30 percent of your budget towards wants like vacations, clothes and dining out. This generous amount gives you room to satisfy your wants without negatively impacting your needs like housing, saving and paying down debt.
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"I can spend more with a credit card."
People often spend more money when they shop with a credit card due to something called present bias. Present bias is when you care more about the payoffs and losses that happen in the present versus in the future. So, unless your credit card says declined when a cashier swipes your credit card, your brain might not process the loss of money from your bank account right away.
Solution: Start carrying cash. When you spend with cash, you tend to immediately feel the pinch of losing money whereas, with a credit card, you can delay that feeling until it’s time to pay your bill, at which point your money is already spent.
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"Small purchases are harmless."
Whether it’s a $5 T-shirt that you think is a great deal or your daily coffee run, it’s important not to downplay how these purchases impact your finances over time.
Solution: Stick to a budget that will help you separate your needs from your desires. If you just can’t give up those small purchases, you need to allocate money for discretionary spending in your budget so that you don’t end up overspending when you’re not planning to, which will help you stretch your paycheck farther.
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"But I get paid in a couple days."
Although your brain might try to rationalize your impulsive purchase by thinking about how your next paycheck is right around the corner, it doesn’t mean that spending more money is justified. You have to remember that it’s not your money until it actually hits your bank account. And even then, there are other expenses that take priority over those new shoes.
Solution: Make paying yourself first a priority. By getting into the habit of saving money first, you can eliminate debt and avoid the trap of living paycheck to paycheck.
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"I can always return it."
Chances are you most likely won’t return it. This is due to the idea of construal-level theory which states that if a deadline or action is far away in a person’s mind, people naturally remove it from their consciousness until it becomes pressing. For example, if a store allows you to return an item after 30, 60 or even 90 days, you might procrastinate returning the item or not even return it at all.
Solution: Be decisive in your purchases. If you’re on the fence, it might be a sign for you to hold off on making the purchase anyway. If you’ve totally forgotten about it in a week, you probably didn’t need to spend that money in the first place.
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"This makes me feel powerful."
Whether you just want to keep up with the Joneses or flaunt your financial status, some people feel the need to spend to exhibit power and control. This might happen if you’re the sole breadwinner at home who wants to be seen as a reliable source of income. Or this could just be a display of masculinity as researcher Daniel Kruger found in a 2008 study. In his study, Kruger found that in the group of 18- to 45-year-old men he studied, the ones who overspent wanted and had more “mating partners.”
Solution: Remember that overspending can lead to debt, and that can make you less powerful. Look for other ways to feel powerful like improving your posture, thinking positively and taking pride in your appearance.
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"This can help take my mind off my bills and other worries of life."
When things are challenging in life, people often cope by ignoring the situations that cause them stress. For example, you might have a pile of outstanding bills or ongoing stress at home that you want to avoid. Instead of confronting the issue, you might seek out positive forms of distraction such as buying some new products that make you feel good — until that good feeling wears off, and you’re back to where you started.
Solution: Track your expenses so you visually see how much you’re spending and account for every dollar. This can help sober you to your emotional spending.
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"This will make me seem cooler."
In the world where people flaunt what they’ve got on Instagram, it’s easy to feel pressured to keep up with a “cool” image. A recent study found that close to 90 percent of millennials felt that social media “creates a tendency to compare their own wealth or lifestyle to that of their peers,” according to CNBC.
Solution: Partake in social media in moderation, and find ways to boost your self-esteem that don’t involve social media. Your 500 closest acquaintances don’t need to know everything.
"It's okay because it's the holidays."
When it comes to the holidays, you might feel free to spend more money, especially with all those “great sales.” But the holidays can lead to excessive overspending, leading many Americans to go beyond their budget.
Solution: Even though it’s the holidays, it’s best to stick to some sort of budget. It doesn’t mean that you need to skimp on gifts. Instead, try to account for the extra spending in your budget by preparing for the holidays early and saving up money just for that occasion. You can also make a habit of buying things you see on sale throughout the year that would make great gifts for people on your list to lessen the impact on your December budget.
Click through to see the expenses successful people don’t waste money on.
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