5: The Psychology of Money – Why Your Brain Hates Your Budget

Typically, when talking about finances, people assume that they are being logical and rational beings. The truth is that we are emotional beings looking for ways to justify our emotional decisions through numerical analysis; therefore, when it comes to creating a financial plan, you need to understand not only the numbers but also how your emotions are impacting your purchases.

1. The Social Media Influencers Comparison Game

In the past, people compared their possessions with those of their neighbors or friends. Today people use social media for the same purpose, but they want their "behind-the-scenes'" lives to match up with the "highlight reels" of their influencer friends. This emotional reaction causes people to impulse buy items that they do not need; however, it creates an even bigger problem when they try to convince themselves that they must purchase something because they can "afford it" when really they cannot!

2. Friction: Creates a Buffer Zone Before You Make a Purchase

Our brains operate on a reward system, so when we see something we want, we want immediate gratification. To combat this tendency, I recommend that you add "friction" to your spending process:

The 72-Hour Rule—Whenever you want to purchase something, wait three days. If you still want it after three days, buy it! Most must-have items lose their value within 72 hours, so why spend your hard-earned money on them?

Unsaved Credit/Debit Cards—You should remove your credit/debit card information from any shopping application on your phone or online. If you have to type the 16-digit number each time you make an impulse purchase, it may prevent you from doing so altogether!

3. The Difference Between Scarcity vs. Abundance

Stop thinking "I can't afford it!" This creates a restricted mindset for you. Instead, ask yourself "Is this a priority?" This puts the power of choice back in YOUR hands! You are NOT "depriving" yourself of this item; you are choosing to be free from the temporary satisfaction of buying something that you may never use.