When That Little Voice In Our Head Tells Us to Buy The Thing…
Have you ever walked into a store with a clear idea of your budget, only to fall in love with and buy something outside of that budget? That has happened to me more times than I’d like to admit, especially when it comes to clothes. There’s something about holding an item in your hands that makes it hard to resist – compared to online shopping, where you can simply close the tab. In these moments, the emotional part of my brain overrides the part telling me to stop overspending, and I lose track of my goal of building wealth.
What typically happens next for me is that, even though I’m excited about my new clothes, I feel a sense of guilt for not having enough willpower to stick to my budget. That guilt hovers over me like a cloud – at least until my next paycheck, and I get my finances back on track. Why do we overspend, even if we have a robust and behavioral science-friendly budget?
I wrote about how cognitive biases derail budgets and how to design systems that work in this article if you’re interested.
…We End Up Overspending, Even When We Know Better. But Why?
For better or for worse, humans are not perfectly rational creatures. We make mistakes, we give in to temptations, and we are emotional. These infallibilities are present in all aspects of our lives, including when we need to make financial decisions. Emotions, such as falling in love with a suede jacket at a vintage shop in London – even when we really don’t need another – are human.
When we recognize the role emotions play in our decision-making, we can better see that overspending does not equate to a lack of discipline. In fact, a 2021 literature review found that people who are feeling heightened emotions are more likely to engage in impulse spending. Further fueling impulse spending, researchers speculate that paying by credit card (rather than cash) theoretically “releases the brakes” of not spending.
A 2021 study supports this idea. In the study, researchers conducted fMRIs on 28 participants while they purchased goods, either with their personal credit card or in cash. Purchases via credit card elicited strong activation of the striatum, suggesting a neural reward process was engaged. In short, the findings suggest that paying with credit cards can lead to increased impulse spending.
In this article, I wrote about contactless payments and how they’re turning us into money-spending zombies (it was Halloween).
The Role of Emotions
As we can see, spending and overspending are vulnerable to our emotions. While emotions are at play upon the action of spending, they also linger after we overspend. Overspending can impact our physical and mental well-being. It can also lead to social exclusion, loneliness, and depressive thoughts. Further, if not contained, overspending can lead to debt, which can thus lead to a deeper spiral of debt. There is one emotion that is the most predictable behavioral modifier in keeping us trapped in a cycle of negative emotions and overspending, and that’s shame.
Shame and Overspending are Interwoven
Shame can feel like a dark cloud hanging over us, especially when we think about it in the context of financial decisions. It is even a stronger driver of financial difficulties than guilt, which surprised me. That’s because shame, more than guilt, can lead people to disengage with the shame-inducing realities of their challenging financial situations. It’s the disengagement that can negatively affect their long-term economic well-being.
In a Swedish study involving 5,666 participants, researchers found that, irrespective of age, gender, education, household type, or socioeconomic status, people had a higher risk of poor psychosocial health if they’d also experienced greater financial stress and shame. Their findings supported the inverse theory, too: that people had a lower risk for poor psychosocial health if they had experienced less financial stress or shame. Thus, shame is not just an emotion; it directly impacts our mental health and overall health, too.
As an esteemed researcher on guilt and vulnerability, Brené Brown wrote this in her book, Daring Greatly: “Guilt is just as powerful, but its influence is positive, while shame’s is destructive. Shame erodes our courage and fuels disengagement.” Thankfully there are research-backed ways to overcome shame, stop overspending, and get back to building wealth.
“Shame erodes our courage and fuels disengagement.”
Brené Brown, Daring Greatly
Stopping Overspending Using a Behaviorally-Informed Approach
Now that we better understand the emotional science behind overspending, we can explore solutions.
Build a Budget Closer to the Time When You’ll Be Spending
While building a budget is the traditional recommendation to address overspending, research suggests it’s more salient when you create or revisit your budget closer to the time you will purchase an item. A team of researchers who studied this issue argued that as the time between building your budget and making the purchase increases, you become more likely to overspend. They dubbed this phenomenon “budget depreciation.”
To address this, let’s ponder the following scenario. Let’s say that you know you need to buy a new pair of shoes. You could revisit your budget a few days before you go shopping so that the number is fresh in your mind as you consider what you’d like to buy. Of course, even in these scenarios, overspending can still occur, which leads me to my subsequent recommendation.
Practice Self-Forgiveness
One of the best skills we can learn as adults is how to give ourselves grace. There has been a lot of research on this topic (see articles here and here), especially as it relates to overspending, where it’s referred to as self-forgiveness. We can define self-forgiveness as “a willingness to abandon self-resentment in the face of one’s acknowledged objective wrong, while fostering compassion, generosity, and love toward oneself.” (That definition comes from page 116 of this article.)
With that definition in mind, how can we implement this into our lives? It starts with acknowledging what happened and taking ownership. Taking a moment to reflect on what was happening – both internally and externally – while the overspending occurred can help you notice if and when these patterns recur. If you want something more structured, you can also find free worksheets online. It might seem uncomfortable at first, but research shows how powerful it is.
Some researchers believe that self-forgiveness can lead to continued overspending (see this 2021 journal article for more). However, I’d argue that this only occurs if we give ourselves too much leeway. We must set firm boundaries with ourselves so we can avoid the same acknowledged objective wrongs we forgave ourselves for in the first place.
Building Wealth Starts With Understanding Yourself
Overspending is a part of being human; it isn’t a failure of willpower or determination. When we understand how emotions like shame shape our financial behavior, it becomes clear that real solutions go beyond short-sighted suggestions that don’t account for our imperfect actions. Instead, lasting change comes from working with our psychology, not against it. It also comes from an honest effort to replace shame with awareness and self-compassion.
When we revisit our budgets before we spend and work towards self-forgiveness (without abandoning accountability), we create opportunities to avoid overspending. From that perspective, building wealth becomes less about restriction and more about intention.
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