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If you can’t seem to stick to a budget and you need to blame it on something, in most cases you can justifiably do so on emotional spending. When you need a new phone, it’s that voice that whispers, “but it must be the very latest iPhone, nothing else even compares.”
A phone is definitely a need, but the latest one is most certainly a want. It’s extremely easy to spend unnecessarily, when you excuse a purchase by telling yourself you need it. The key to avoiding the trap of emotional spending, is to know exactly why you want something.
Acknowledge your motives
Motives for spending money are often entirely unrelated to what you’re actually buying. For example, to have a happy life it’s crucial for most of us to maintain friendships. Therefore, you go out for dinner and drinks once a month to catch up and inevitably spend $100. In this example the ‘why’ behind the outing is to see friends, which is a need for you.
Motives for spending money are often entirely unrelated to what you’re actually buying.
The $100 spent is usually just a habit. Or, it’s an emotional decision you’ve made, based on a thought that sounded something like, “I work hard, I deserve to spoil myself.” Yes, you do deserve to spoil yourself. However unless expensive dinners are more important to your life than friends, it’s the time spent with them that’s fulfilling - not the fillet mignon.
To determine needs versus wants, you can apply this example to almost anything, by consciously questioning your motives and adjusting your expenses accordingly.
Actively question each purchase to determine wants versus needs.
List your expenses and question them
The easiest way to curb emotional or habitual spending habits, is to take note of everything you buy and how much it costs. Then, ask yourself why you think you need it. Don’t leave out the little things either, as they’re the ones that often add up. For example:
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You need cleaning products, but do they have to be that expensive brand you pick up by habit?
You need to stay fit, but is a pricey gym membership the only way you can exercise?
You need to eat, but would taking lunch to work be cheaper than eating out each day?
In order to ensure you don’t feel deprived, refer back to your goal. If that’s a holiday, you know the experience will be worth far more than the momentary pleasure of an emotional buy at the shops. If it’s to save for an investment property, the long term payoff far outweighs the time it takes to scrutinise and adjust all of your expenses.
Everyone has different needs and wants, and we all fall into the trap of emotional spending at some time or another. However, when you actively question each purchase to find out ‘why’ you think you need it, you’ll catch yourself in the act. Then, you can have your cake and eat it too.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879.