There are times when it can feel like all you want to do is spend money. That feeling is part of a study, and studies, in behavioral finance.
Spending Money
It can definitely be a rush to buy something that is tempting. Even if it’s something you planned on buying, it can still be a rush to buy it.
It definitely is a high when you find items that are absolutely you and you won’t regret long term, but for the short term you hadn’t quite planned on buying.
The Reasons Behind It
Behavioral finance is the study of why we do what we do with respect to money.
When we spend or not spend money, the reason may be tied to behavioral finance key concepts:
Mental Accounting
This is when we allocate money for different purposes. This actually can be good, as it can help us to save money. But, it can be bad when we over-allocate money for a financial goal.
Herd Behavior
When we make purchase decisions based on peer pressure or FOMO, this is herd behavior. A common example is people getting caught in the moment of buying investments only because they are going up in value.
Emotional Gap
Sometimes, when we feel heightened emotions, we buy something based off that feeling. An example could be that at Christmas time you overspend on presents in an effort to not disappoint people.
Anchoring
A key strategy for us to stick to a Spending Plan is to anchor around the reason for our Spending Plan. This can help us to not spend money we didn’t intend to.
There’s a great many reasons we spend the money we do, and oftentimes it’s on things we already planned on buying. But, sometimes, when it’s not, the reasoning can be explained by behavioral finance.
Next Step
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