Money holds significant importance in our lives, especially in current times marked by relentless inflation. Undeniably, money is a way of life. It is commonly linked with the pursuit of luxury, success and even happiness. While these aspects are undoubtedly important, the true value of money extends beyond materialism. A genius is someone who knows the art of striking a balance between getting drowned away in the river of materialistic possession and finding contentment in the simplicity of life. While we have surely heard the saying “money doesn’t buy happiness,” it plays a key role in enabling us to feel happy. It is not necessary to be rich to be happy, it’s the mindset one has towards money that dictates its effects on one’s life.
Related: The Psychology of Money and Happiness
Relationship between Money and Basic Emotions
If we delve into the Psychology of money, one common topic we encounter is that of Behavioural Finance. With its roots in the psychological study of human decision-making, it is a relatively new and evolving subject in the field of finance. According to Shefrin (1999), “behavioural finance is the application of psychology to financial behaviour– the behaviour of investment practitioners”. To put it simply, it is the study of how human emotions and biases influence financial decisions. Let’s look at some emotions that can be associated with one’s financial status and outlook on money–
- Fear: Earning money is a lot of hard work, but it doesn’t take nearly as much to lose it all. This thought might linger in one’s mind, creating fear. Fear can also be associated with status. One might fear that their financial status will be exposed to acquaintances, and they’ll be looked down upon.
- Guilt: One might feel guilty when they notice that people around them have less than what they do. Sometimes, guilt fosters after a chunk of one’s life has passed trying to earn more money. This is when they realize the importance of time, and where/ who they should have spent it with.
- Envy: Feelings of envy can arise when people observe others enjoying luxuries or financial success, leading them to want a lifestyle like that of others around them. This may create a vicious cycle of comparison and dissatisfaction and lead to a state of discontentment with one’s circumstances.
- Pride: Some people might feed their egos with their monetary status. Showing off wealth might come naturally in this case. Most emotions triggered by money tend to be negative. Finances dictate people’s lives so much that many dedicate most of them to earning more. It can cause a lot of anxiety and stress as well.
- Greed: Earning money can become addictive. As we get a taste of luxuries, it makes us want more. It sometimes becomes hard to see the simple pleasures of life. This is where the ambition of earning more comes in. When it does, it doesn’t easily leave, making us greedy for money.
- Loss Aversion: Human psychology has a tendency to place more importance on avoiding losses than achieving gains, which makes people more likely to focus on possible financial setbacks rather than potential gains. This can contribute to stress and anxiety and affect one’s well-being.
- Shame: It is quite natural for a person to not be open about their poor financial conditions since they do not want to be judged. This can result in shame and isolation.
Related: Top 10 books to read for Financial Independence in 2024
Understanding Spending Behaviour and Impulse Control
Impulse spending is the act of making an impulsive, emotional purchase without careful planning, budgeting, or thought. Impulses are difficult to control and often result from emotions like joy or anger, and other psychological factors. Consumers frequently engage in impulse buying, which is impacted by a wide range of internal and external factors. A research on the behavioural psychology of impulsive spending found that internal influences such as personality traits, buying beliefs, attitudes, cultural values and demographic factors have a role to play. The external factors can include product promotion and advertising, social pressure and Fear of Missing Out (FOMO), getting a good deal in the form of offers and discounts, dopamine boost provided by shopping, seasonal and situational factors like flash sales, and so on.
Read More: Understanding the Excessive Craze of Online Shopping
Managing Excessive Spending Habits
Let us understand some of the strategies that can be adopted to manage overspending and stay on budget—
- Bookkeeping: While often associated with businesses and organisations, it is also a valuable practice for managing personal finances. Keeping a record of daily expenditures and transactions can help one understand their spending habits, prioritise expenses, and make informed financial decisions.
- Try No-Spend Challenge: An interesting finance trend that went viral on TikTok, the No-Spend Challenge refers to limiting purchases to essential expenses for a set period. This includes refraining from spending on nonessentials like dining out or unnecessary purchases. By prioritising responsible spending, money can be saved for important goals such as debt repayment or savings.
- Pause and Think: Impulsive buying occurs without much thought. A simple solution for it is to pause and think. Asking questions like “Do I really need it or it is just a want?”, “Is it worth spending money on?”, “What are some immediate needs that I should prioritise?” can help in judging the situation more practically and one can make an informed decision. Remember to practice delayed gratification.
- Create a Budget: To create a realistic budget, start with assessing your income and spending. Set aside a certain amount for monthly expenses like groceries, utilities, rent, and travel. One should not forget to set aside some money for savings and extra expenditures as well.
- Financial Literacy: Learning more about planning, budgeting and savings will allow an individual to make optimal decisions about their finances. It not only adds to the skill set, but also contributes to wellbeing. It gives people the ability to build wealth, manage debts and savings with confidence.
Positive Psychology: Role of Gratitude
We live in a world where there are many wealthy individuals who save, spend, and make a lot of money, yet they are not content. On the other hand, there are those who, in spite of having less money, in spite of facing financial struggles, manage to bounce back over and again, and most importantly, they are content with their life. What then makes their lives simpler? What is that one thing which they do differently, that others don’t know about? The secret is Gratitude— a feeling of appreciation and thankfulness. Rhonda Byrne, a well known author and manifestation coach, talks extensively about the magic of gratitude. This can be applied in all aspects of life like love, health, career, relationships, and making money is no different!
As put by David Desteno, a Professor of Psychology, “Gratitude makes us value the future more”, practicing gratitude regularly, through activities like journaling or expressing appreciation to others, improves our patience and contentment towards money. Research indicates that those who practice thankfulness make better financial decisions and are less likely to make impulsive purchases. Moreover, giving back to others also reinforces the feelings of abundance and thankfulness. Not only does helping those in need benefit the one giving, but it also serves as a reminder of our own blessings and genuine richness.
While talking about Positive Psychology, the incredible influence of affirmations cannot be overlooked. Of all the affirmations that have gained popularity online, here’s one has drawn the most attention and shown to be very powerful—
“I love money and money loves me. Money comes to me easily, money comes to me fast. Money loves my company; when money comes, it lasts. I get paid to exist; my existence pays for itself. Every penny I spend is returned to me tenfold. Abundance is all I know!”
Recommended Books on the Psychology of Money
Below are some recommendations to know the nitty gritty details of Psychology of money—
- “The Psychology of Money” by Morgan Housel
- “The Secret to Love, Health, and Money: A Masterclass” by Rhonda Byrne
- “Your Money Or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence” by Joseph R. Dominguez and Vicki Robin
- “Rich Dad Poor Dad” by Robert Kiyosaki and Sharon Lechter
- “Think and Grow Rich” by Napoleon Hill
References +
- Moes, M. (2024). So you want to know how to control impulse spending? – My money matters. RBC Royal Bank. https://www.rbcroyalbank.com/en-ca/my-money-matters/debt-and-stress-relief/struggling-to-make-ends-meet/managing-expenses/so-you-want-to-know-how-to-control-impulse-spending/
- Psychologs Magazine. (2023, November). Psychology of money. https://www.psychologs.com/psychology-of-money/
- Torabi, B. F. (2016, October). Farnoosh Torabi – How Gratitude makes you richer. Oprah.com. https://www.oprah.com/money/farnoosh-torabi-how-gratitude-makes-you-richer/all
