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ECONOMY| 12.18.2023

Emotional spending: what is it and
how to manage it?

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Among the complex forces influencing people’s financial decisions, spending driven by emotion has proven to be a significant and consequential challenge. Such spending, which is fueled by emotional responses rather than by thought-through reasons, can have a lasting impact on a person’s financial stability.

Below, we will explain in detail what emotionally-driven spending is, how it affects your personal money matters, and offer practical strategies for effectively managing such spending.

What is emotional spending?

Emotion-driven spending is spending driven by feelings rather than by a rational assessment of one’s needs. The intimate connection between our emotions and our financial decisions is a complex phenomenon. When we find ourselves in heightened emotional states of either happiness or sadness, our financial choices are often affected. 

The emotional connection to money can manifest itself in a variety of ways, from impulse purchases to fear-driven investment decisions. Understanding and recognizing these dynamics is essential in order to effectively manage our emotional finances.

Impact on personal finances:

Emotions play an important role in our personal finances. Research has shown that a substantial percentage of unplanned spending arises from impulsive emotional responses. This directly affects both our ability to save and our long-term financial stability.

Stress from impulse purchases can lead to adversity. Debt arising from decisions that haven’t been thought out can lead to a major financial burden, further exacerbating stress and negatively affecting a person’s quality of life.

Emotional spending encompasses a number of categories that reflect the complexity of the connection between our emotions and personal finances. These might include purchases driven by euphoria to spending generated by stress and anxiety, such spending shows how our emotions can influence monetary decisions.

Impulse purchases are a common form of emotional spending. The search for immediate gratification will lead a person to acquire goods or services they do not really need. Stress-generated expenses may appear to provide temporary relief, although this is often at the expense of one’s long-term financial position.

How can you identify emotional spending?

Realizing when spending is emotionally driven is the first step in managing it. Keeping a spending log, being aware of behavioral patterns and analyzing the reasons behind purchases are useful ways to make such an identification. Here are some examples of how to identify such spending: 

–      Detailed spending log.

Be aware of your daily spending. Regularly reviewing these records will allow you to identify patterns and recognize if certain spending is related to emotional responses. 

     Self-assessment before making a purchase.

Before making a purchase, assess your emotional state. If you are going through a time of emotional sensitivity, the decision may be influenced by your feelings rather than an actual need. 

–      Scrutinize impulse purchases.

Pay special attention to impulse purchases. If you find that you are buying certain products or services for no good reason, you are probably being influenced by passing emotions. 

–      Identify patterns of behavior.

Take note if there are specific times or situations that trigger emotional spending. Recognizing these triggers will help you to be alert and make more conscious decisions in such situations. 

    Ask why.

Before every purchase, ask yourself this question: Why am I doing this? If the response is more related to an emotion than a real need, it is a sign that this might be an emotional purchase.

What situations cause emotional spending?

There are different reasons that can give rise to emotional spending. These are some of the situations that can generate such an impulse:

  • Excess empathy: Being an empathetic person means absorbing the emotions and concerns of loved ones. Listening for hours to a friend or family member going through an emotional crisis can be emotionally draining, even with the best of intentions.
  • Self-demanding: people who are excessively perfectionist and in a constant state of self-criticism can suffer high levels of stress.
  • Suppression of emotions: people who tend to repress their emotions may experience a high degree of built-up emotional tension.
  • Conflictive relationships: Going through a toxic relationship or a sentimental, social or family crisis can produce a feeling of lack of support that leads to emotional spending.
  • Hard times: Challenging times, such as dealing with work-related stress, occupational uncertainty, the death of a loved one, making a difficult decision and so on, can be situations that generate a heavy emotional burden.

Emotional spending can affect your emotional well-being and impact your financial decisions. Here are some examples:

  • Going into debt because of whims: going into debt due to a lack of emotional control when making purchases of goods or services that are totally unnecessary, or just a whim.
  • Impulsive emotional purchases: Impulsive spending in response to strong emotions such as stress, sadness or momentary happiness can generate an unnecessary and wasteful outflow of money.
  • Social pressure: Spending money to meet social expectations or to impress others can generate unnecessary debt. Today, social influence exerts great pressure on both people’s behavior and their spending due to the desire for social acceptance. 

How can you bring emotional spending under control?

Effectively controlling such spending involves adopting conscious practices. Setting monthly spending limits, defining realistic financial goals and developing a thoughtful approach to purchasing decisions are effective methods for controlling emotional spending. Here are some tips on how to efficiently manage emotional spending:

–     Set an emotional budget.

Define clear limits for spending that is often influenced by emotions. By allocating a specific amount to these areas, you avoid impulsive excesses and encourage more conscious decisions.

  • Implement the 24 hour rule

Before making a major emotion-driven purchase, wait at least 24 hours. This time for reflection can give you the perspective you need to assess whether the purchase is a real need or just a momentary emotional response.

–     Delayed gratification.

Focus on long-term rewards rather than instant gratification. By postponing certain purchases or pleasures for the future, you can reduce the influence of emotions on your financial decisions and work toward more meaningful goals.

  •    Leverage technology

Apps such as spending monitors, virtual financial advisors and budgeting platforms can be great allies in managing emotional finances. These tools shed light on spending patterns and give you personalized guidance. YNAB, Mint, PocketGuard, Goodbudget or Wally are some of these.

In conclusion, controlling emotional spending is critical to cultivating sound financial health. With awareness, early identification and the use of appropriate tools, we can take control of our financial decisions and foster lasting economic well-being.  At MAPFRE, we believe financial education is the starting point for a healthy relationship with our finances. This is why we have awide variety of articles that will help you quickly and easily learn about financial matters, and they provide practical tips that are useful in everyday life.