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When emotionally triggered, you may self-soothe with some retail therapy. This isn't necessarily a bad thing. Treating yourself to takeout after a tough work day probably won't break the bank, assuming it isn't a daily ritual. It's unchecked emotional spending that's problematic.
Emotional spending is when you spend money that you didn't plan to in response to heightened emotions. Blindly spending in response to your emotional state can wreak havoc on your financial life. You may find yourself stuck in a debt cycle, or struggling to pay your bills or make progress toward your financial goals. Let's explore what emotional spending is, when it can be a problem and tips for preventing it.
What Is Emotional Spending?
Emotional spending is exactly what it sounds like. It's characterized by impulsive spending that's fueled by big emotions, such as stress, anxiety or sadness. Research suggests that consumers who are stressed may spend more on products they consider necessities. The theory is that it provides a sense of control when other areas of their life feel uncontrollable. Positive emotions can also lead to overspending. When celebrating a special occasion, you may find yourself ignoring your budget and convincing yourself that you've earned a splurge.
Either way, emotional spending can threaten your financial well-being. Here are some warning signs to look out for:
- You impulsively spend money and then regret it.
- You're taking on new debt or are unable to pay off existing debt.
- When overwhelmed, spending money makes you feel better in the short term.
How to Stop Emotional Spending
1. Stick to Your Budget
A budget is a plan for managing your income and expenses. It provides peace of mind and ensures that your financial obligations will be covered. The 50/30/20 plan, the two-account system and zero-based budgeting are three different ways to go about budgeting. Using a budgeting app is another option. The goal is to put boundaries around your spending and live within your means.
If sticking to your budget is difficult, you may want to revisit your spending plan. That might involve choosing a different budgeting style, reducing your expenses or increasing your income. Other ways to make your budget work include:
- Tracking your spending
- Reviewing your budget on a weekly basis and anticipating upcoming spending
- Sleeping on big purchases
2. Find New Ways to Cope With Your Emotions
All kinds of emotions can lead to overspending. In one study, people were willing to pay up to 30% more for a product when they were feeling sad. Awareness is the first step to overcoming emotional spending. A financial therapist may prove helpful here. They have training in both psychology and finance. The right financial therapist can help you find healthy behaviors to replace impulsive spending.
Understanding your relationship with money will likely be part of the journey. That includes examining your emotional spending triggers. The Financial Therapy Association provides a free directory to help folks find a qualified practitioner. Working with a credit counselor can be a cost-effective alternative. Consider the National Foundation for Credit Counseling or the Financial Counseling Association of America.
3. Make Emotional Spending More Difficult
This can be as simple as removing your credit cards from your wallet, including store credit cards. You could take it a step further and delete your credit cards from your virtual wallet as well. Here are some other safeguards to consider:
- Use cash when shopping. When that money is gone, it's gone.
- Give your bank accounts nicknames. If your savings account is labeled as "home down payment" or "vacation fund," you may be less apt to dip into it for emotional spending.
- Wait 24 hours before making an unplanned purchase. Unnecessary purchases may lose their luster a few hours later.
- Find another way to regulate your emotions. Maybe that's going for a walk, calling a friend or doing a five-minute mindfulness meditation. The idea is to find healthy ways to deal with overwhelming feelings.
4. Remove Temptation
As the old saying goes: Out of sight, out of mind. Eliminate cues that activate old habits and prompt you to overspend. Some simple ideas include:
- Unsubscribing from store emails and texts
- Unfollowing stores on social media
- Deleting shopping and store apps
- Declining offers to save more by opening a store credit card
- Avoiding retail sites and stores when emotionally triggered
5. Treat Yourself (Within Reason)
Saying you'll never splurge again probably isn't realistic—or healthy. You should be able to spend some of your money on yourself without feeling guilty. The key is to do so within reason. Here's how:
- Carve out fun money in your budget. Make flexible spending a regular line item on your budget. When you plan ahead like this, you make space for nonessential spending. Just be sure to stay within the spending limit you set for yourself.
- Spend a portion of cash windfalls on splurges. When you receive a tax refund or work bonus, dedicate a small portion to fun money. Maybe you keep that in a separate account or hold it in cash. When you want to spend outside your budget, you've got a little something set aside to do that.
- Pick up a side gig. Keep this income separate from your regular budget. If you feel the desire to treat yourself, you'll have a pool of cash for that purpose.
The goal of these strategies is to scratch the emotional spending itch in a healthy way. Always be sure to have a spending limit that feels affordable to you.
The Bottom Line
Emotional spending doesn't mean you're bad at managing your money—but if it's impacting your financial health, it's time to look at solutions. That may involve re-examining your budget, working with a financial therapist or creating barriers that make it harder to overspend.
It's important since emotional spending could impact your credit. No matter where you are on the journey, Experian allows you to check your credit report and credit score for free.