Can Emotional Spending Derail Your Financial Plan? According to a 2013 study, when you are sad, stressed or anxious, you tend to resort to retail therapy to turn your mood around.
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Purchasing essentials or sometimes luxury items is like the forbidden apple all of us would like to have a bite of. Most of us are also guilty of indulging in spending habits that don’t yield positive results and not surprisingly, one of the biggest determinants of your spending is your emotional state. According to a 2013 study, we tend to resort to retail therapy to turn our mood around when we’re stressed out, anxious or in a negative mood in general.
It’s known that to deal with emotional stress, we take refuge in a variety of maladaptive coping mechanisms and shopping is one of them. This warrants a few questions like – Can a spending spree affect our monthly budget? Does it have any negative influence on our credit score? Or if it truly has the potential to derail our financial plans?
Let’s find the answers to these questions in this write-up.
Emotional Spending or Retail therapy, has been recognized as a coping mechanism used by many to relieve their symptoms arising out of emotional distress and/or anxiety. This shopping spree is different from the regular errand run as emotions rather than requirements trigger it. Here, shopping online or at a retail outlet serves as a distraction from the inconveniences occurring in the individual’s daily life.
Data from various research suggests that emotional spending has increased since the outbreak of COVID-19 as several individuals resorted to online shopping when they felt anxious or had a burnout. The nature of the expense, nevertheless, differs for different people. Some individuals end up spending more on food while others spend more on clothing and fashion accessories.
What makes retail therapy an emotionally uplifting activity is that it does not involve any negative feelings like remorse, anxiety, or any other distress when you spend. The mood remains good for some time even after you make the purchase. Most people resort to retail therapy or emotional spending when they feel a lack of control over their recent situation and need something to gain control back.
During the pandemic and the lockdown, several individuals resorted to emotional spending to reduce the anxiety of not being able to go out. This impulsive spending, however, results in a depletion of savings, credit card debts, as well as poor credit scores. Moreover, once the mood gets low again, the person would start spending impulsively again.
While emotional spending appears to be positive, it is not always the case. Once you get back to your reasonable mood, you may find that you have made some unnecessary expenses. Furthermore, the money you planned to use for some other priority ends up getting used to purchasing unnecessary items.
Your existing financial condition too determines whether retail therapy is an ideal coping mechanism or not. So if you spend within the set limit, retail therapy can often be harmless. However, if you end up spending more money than you have, you will end up getting more debt. If the financial situation is not sound, even window shopping can trigger your mood further.
You can get impulsive about making purchases when any situation in your daily life becomes uncontrollable. Some of the reasons for your emotional spending could be –
Financial stress and mental health issues can create a never-ending cycle of emotional spending. Your inability to manage money can deteriorate your mental health, which, in turn, compels you to spend more money.
If you feel that you are indulged in retail therapy in excess, you should opt for alternatives like –
To get a better idea of controlling your urge to spend emotionally, read the following section.
You should practice the following measures to control the habit of retail therapy –
One of the reasons you can end up practicing retail therapy is the temporary positivity it brings. You get a sense of control over your expenses and feel empowered by shopping. However, this is not the best decision as you may end up getting into a debt trap.
You can look for alternative measures to cope with this habit like–
Each individual has different requirements and should plan the monthly expenses likewise. There is a need to prioritise the requirements and create a plan as per your income. If any emotional impulsion surfaces, you can try looking into the plan of expenses and reason with your emotion. Looking at how you have allocated funds towards designated expenses of the month can also help you overcome the urge to purchase impulsively.
It is crucial to understand that emotional spending is constructive if only done within a limit. The best way to keep this in check is to create a budget for emotional spending. You can direct a portion of your income towards line items. This will keep your impulsive shopping within control. Nevertheless, it is necessary to reiterate that you should be hands-on with the budget and spend only according to the crafted plans.
It is always recommended to regularly check your bank account balance using online banking or mobile application. You can view your balance to get a reality check when you feel an urge to spend, as this can caution you about regulating your expenses and avoid future emotional expenses.
Saving money allows you to grow your wealth over a period. Besides a confidence boost, this also provides you with adequate support in case you end up facing any financial crisis in life. Saving implies saving your money, investing it in the right portfolio, and then spending the earnings wisely. When you save, you create a reasonable corpus for unforeseen situations.
The top financial mobile applications to manage money and avoid retail therapy are –
It can help you keep a tab on your spending as well as expenses. Additionally, you may share payments with pals, pay bills, send and receive payments securely through social media, and access discount offers on dining, movies, vacations, and other things.
This international application is a basic budgeting tool geared towards people having trouble keeping things organised. You can establish as many monthly, weekly, or daily plans as you need, depending on your requirement, by choosing AED as your national currency. There are only the standard totals for revenue and expenses – no complicated pie charts or graphs whatsoever.
This application can help you manage your spending by dividing your earnings and cash into various budget categories including food, transportation, dining out, and rent. Additionally, it can assist you in saving for major expenses by syncing and sharing household spending.
When you socialise with friends or family, dividing the bill can be one of the major pain points. Splitwise can prove helpful in alleviating this. By the end of the month, it totals all the invoices and notifies those who owe you money, which can ensure proper distribution of expenses without burdening any individual and avoid embarrassing circumstances.
This app from the UAE helps you plan and achieve objectives by comparing your earnings to your expenditures, helping you identify where your money goes. Additionally, this app allows you to save images of receipts and bills and works with all currencies.
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