Financial well-being is a personal goal for many adults and even teenagers, who are on their way of deciding who they want to be and where they want to get in life.
Being financially stable and secure is a key feature on your way to wellbeing, but what are the main factors, how does money work? How to make it work for you? We’ll explore it all together.
We’ll get to know about the psychology of money, why money habits matter, what spending too much because of feelings can lead to, we’ll talk about emotions and pressure and many more.
What is the psychology of money?
What is the psychology of money? You may have heard this term a lot, as we live in a society, where everyone wants to know the real value of money, on their way of learning how to spend it wisely, taking into consideration a lot of important factors.
Finally, the psychology of money is the study of how people behave and and in relation to money and it goes beyond known financial theories and numbers, instead, it focuses on the emotional, social and psychological factors that influence our financial decisions.
Money decisions are driven more by emotions than logic. Instead of relying on clear analysis, people often act out of fear, shame, desire, or a need for security.For example someone may overspend to feel accepted or save excessively due to past traumas.
It’s important to note, that everyone’s money mindset is shaped exclusively by experience, so, the beliefs about money can be shaped by childhood and family background, personal success or failures, the area they grew up in, etc.
While talking about spending smart, we sometimes forget that human brains are naturally not built for long-term planning, that’s why saving for later or investing for the future may be difficult.
People often spend inconsistently-they buy expensive things while worrying about small expenses. This behavior, called behavioral bias, is quite common nowadays. You can avoid it in a few ways. There are a few ways to avoid them.
Morgan Housel, the author of the book “The Psychology of Money” once said something that can really make a change in your life. He said:
“Doing well with money has little to do with how smart you are and a lot to do with how you behave”. And it can change a lot in your mindset.
Psychology of money is a mindblowing field that mixes finance with human behavior, emotions, decision-making processes. It helps us explain why we often act irrationally with money, even when we think that we know better.
Let’s see through the key ideas:
- Money is more about behavior than knowledge
Many people don’t struggle with money because they lack of financial education, they struggle because of habits, emotions and biases (the ones we talked about a few paragraphs back). You can follow all the right steps (saving, budgeting, investing) but still sabotage your progress if your mindset doesn’t align.
- Your relationship with money is personal and emotional
Money touches literally everything- your freedom, security, identity and even relationships. So, it’s fair to say that your family’s talks about money, cultural and societal values, and early experiences with wealth shape your money story.
This is what mainly drives unconscious behaviors like guilt about spending, fear of losing money, making you feel like you don’t deserve wealth, etc.
- As mentioned above, our brains are wired for short-term thinking
- We tend to chase instant rewards (like impulsive buying vs. saving)
- Often struggle with delayed rewards (investing for retirement)
- We underestimate risk or future needs
But if we understand this, it can help us set up tools to stay on track, like using automatic savings, having someone who can constantly check on us or pay attention on how we spend, etc.
- Common psychological traps
Loss aversion- Losing money hurts more than earning the same amount feels great. So we avoid risk, even when it’s a wise choice.
Anchoring- The first number we see on price tags (mainly high) affects how we judge what something is worth.
Mental accounting- We treat money differently, depending on where it comes from, while we should consider money as money. We value it more when we get it as a paycheck, but when we get it as a bonus, we don’t pay proper attention.
Confirmation bias- We tend to look for information that supports what we already believe about money and ignore anything that doesn’t.
- Shifting your money mindset
We should practice awareness by tracking our spending, journaling about our money beliefs, we should replace shame with curiosity, asking ourselves why we feel triggered or stuck, we should celebrate progress,not perfection, it’s important to set our own version of “enough”, but never what others expect. We should also learn from mistakes without judging ourselves.
Let’s also get some knowledge on money habits, and see why they matter.
Why do money habits matter?
Money habits are the repeated behaviors and choices we make with our money, without thinking much about them. These include how we spend our funds, how we save, invest or even talk about our money or money in general.
Let’s see what examples of money habits are there.
Saving some part of your income every month
Making impulsive purchases when stressed
Ignoring your expenses or ignoring them
Setting financial goals or no goals at all
Either avoiding debt or alway relying on credits
We do all of these things with our money, intentionally or unintentionally; some are fundamental, some are not, and we all go through phases in life when we see and feel them.
But why do they matter so much?
- Firstly, they shape our financial future. Good habits build wealth, but bad ones create instability and stress.
- They reflect our mindset. Our habits show what we believe about money, whether it’s a burden, a tool or a source of fear.
- They affect our well-being. Financial stress can easily affect our health condition, mental health and relationships. If we build healthy habits, they will bring peace of mind and much confidence.
By building smart money habits we set ourselves up for lasting success, one decision at a time.
More healthy habits are the followings:
- Paying ourselves first – like saving a certain amount for yourself right after receiving a bonus or a monthly paycheck.
- Reviewing our finances regularly – doing a monthly check-in on bills and goals, our spending and saving progress
- And finally, spending intentionally- purchasing things when we really need them, get things that bring long-time value.
Implementing these habits will help us align our money with our actual values and reduce impulse buys .
There are actually a lot of ways to prevent ourselves from negative impacts like spending too much because of feelings, but let’s find out what it’s actually about and how to be more not harsh but demanding on ourselves.
Spending Too Much Because of Feelings
Experts claim that spending isn’t about what we really need. It’s about how we feel at the moment of buying. We can buy something that will give us energy, to reward ourselves after a hard day, or just to keep up with the rest of the world.
So, when we point out what brings us stress we can create a stable financial and emotional well-being by removing it from our lives. This brings so much peace.
How Emotions and Pressure Make Us Spend More
Emotions and social pressure often make us spend more than we should and it is expressed in our desire to shop to cope with stress, boredom or reward ourselves after a hard working day, even if the purchase isn’t necessary.
Pressure from the internet, friends or relatives can eventually push us to spend more than we should just to keep up or feel included. Over time, this can drain both our money and our sense of control.
So, staying emotionally aware makes a huge sense here. It helps us make better choices without dragging others down or triggering them.
When struggling with emotional instability, you may unintentionally affect vulnerable people and become more likely to make impulsive choices, especially with money.
What to do to prevent ourselves from buying based on our emotions and pressure we get?
To prevent emotional or pressure-driven spending, start by pausing before each purchase and ask yourself twice whether you really need it or if it’s just a wish caused by boredom.
Try using the 24-hour rule—wait a day before making a purchase. Alternatively, use cash only for non-essential items. When you feel the money in your hands, you’ll spend it more responsibly. That’s because money on credit cards often feels like just points, while cash feels more real.
Another important thing is – surrounding ourselves with people who respect our financial boundaries and focus on what adds value to their and our lives.
Having irresponsible financial habits is also a result of not planning your money.
Let’s see what it leads to.
Not Planning Your Money
Not planning your money can lead to continuous emotional financial decisions. So, without having a certain plan it’s easy to overspend your funds when you’re stressed or fall into debt trying to keep up with the rest of the world.
It creates a feeling of uncertainty and brings pressure, leaving you vulnerable to long-term instability. You lose track of your money flow and you also miss financial goals that you once set.
So, planning your money gives it direction.
A final piece of advice: try to be less influenced by emotions and social pressure, because it can lead to money loss expressed in impulsive purchases.
There are a few tools that can help you manage your finances better. They are the following.
To link all your investments you can use Empower. This will also help you budget, track your money expenses and, of course, connect retirement accounts too.
For portfolio and investment analytics you can use Portfolio Visualizer.
If you’re a customer of The Bank of America, you can use this AI-powered personal chatbot named Erica, which will help you track spending and alerts you to duplicate charges or refunds.
Beliefs That Hold You Back
Our limiting beliefs-deep-rooted thoughts or assumptions that shape how we view money and ourselves—cause all the habits and struggles with money mentioned above. Sometimes, they lead us to think we’re not enough or that we’re missing out. They may also make us believe things will never go the way we want or that our life will never take the turns we hope for. Let’s see some beliefs that really hold us back financially.
- I’ll never have enough
This kind of mindset creates fear or overworking, it can hold you back from investing, enjoying what you have and also taking healthy risks for a better future.
- Money loves me, but as a friend
An approach like this shuts down your growth. It keeps you from trying to improve, creating a frame you think you could never go off.
- Spending makes me feel better
Another example of emotion and pressure-based money spending. Emotional spending becomes a coping mechanism, offering you a temporary relief, but also a long-term financial stress.
- Money is only for lucky people
No, it isn’t. Believing that wealth is out of reach for you can lead to disappointment and lack of motivation, lack of confidence. By thinking this way at work, for example, you can lose your chance of getting a raise, being afraid of asking for it. Money comes to the ones who know its value and how to work towards it.
- Talking about money is wrong
If you constantly avoid conversations about money, you will stay uninformed. This can disconnect you from your finances and even your relationships. That’s why it’s important to talk about financial priorities, desires, and planning.
The first step to overcoming these beliefs is to notice them. If we don’t, we won’t be able to find solutions to our problems. These problems often come from financial irresponsibility, which can be caused by being too attached to these thoughts.
Try to replace this with more empowering thoughts that will motivate you and help you move forward.
Conclusion
So, what we got to learn?
Accepting the idea that the psychology of money reveals that financial success is not just about how much you earn or how much you know, but about the mindset you have,about the habits you develop and, of course, emotional awareness.
Unplanned purchases, social pressure and negative beliefs can gradually shape our financial lives in ways we don’t always see, but the good thing is that all of those patterns can change.
If we become more careful and intentional with our money and challenging beliefs that hold us back and build healthier ones, we will create not only financial stability but also a good sense of control and peace for ourselves. And this will lead to freedom in many aspects of life.
