How do your emotions affect your spending?

After graduating high school, my cousin came up to Anchorage for college. She had almost nothing in her bank account, despite the fact that she had worked nearly full-time for the last two to three years.


Her excuse? When she felt bad, she would go shopping.


As a result, she started college with an empty bank account and a full closet.


While she did later become frugal, my cousin's problem was pretty obvious, even to her. She thought bad feelings could be solved with stuff. She let her emotions rule her spending.


But don't we all do this, to some extent?


Have you ever had your defenses lowered by stress -- been zapped of any and all will to pinch some pennies? Or, perhaps, the reverse is true and you hold on too tightly to your money.


A few months ago, another relative took me out for a bite to eat and our talk turned to my blog and money overall. She confided that her online savings account was up to well over $10,000. At that time, a few banks were offering 4-5% return on promotional CDs, so we discussed the possibility of a CD ladder.


This led to a talk about how she should do something like that. But part of her panics at the thought of taking money out of savings. Logically, she knows that, even in a crisis, she could get by until the CDs began maturing. To feel safe, though, she needs money to be plentiful -- and instantly accessible.


She acknowledged this duality and said it was partially due to being over 50, yet not having nearly enough saved for retirement. Money has always been important for her to feel secure, but the prospect of poverty in later years -- when she couldn't work -- really terrified her.


That's when I asked if she had maxed out her IRA contributions for '08 yet. She hadn't. I pointed out that, since she has a Roth, this was the best of both worlds: Her funds would be accessible, but her profits would grow tax-free over the next 10+ years.


She shook her head, incredulous that such an obvious idea had escaped her. But I didn't find it surprising at all. When it comes to money, she doesn't think so much as feel.


It's a pretty common human trait. In fact, I would bet that just about everyone has some illogical, knee-jerk reaction to money. It's ingrained in us.


When I'm exhausted, sick or experiencing deeper depression, I tend to spend more. It's not just the fact that frugality often takes effort. It's also that, when I don't feel well, I want comforting things: a certain food from a favorite restaurant, pricey junk food, or simply a good time out with my husband.


Part of me seems to believe that things can make me happy. While it's true that a favorite dish or a night on the town can be a good time, neither solves the inherent problems I'm trying to address: illness, exhaustion or depression.


On the other hand, when I'm well I tend to flinch at spending any money. Whether it's popcorn at the movies (which we get into free) or some nice cheese that will make Tim happy, I feel like every cent should be going to our debt.


From my current point of view, the ultimate security lies in being debt-free. So, I can already foresee trouble when, in the future, it comes time to invest. My first order of business will always be to fund retirement. But beyond that? Ordinary investments are going to be a debacle. I am highly risk averse and extremely prone to worry. CDs are at least safe, but sometimes I wonder if it's worth locking up that money for such relatively small amounts. (I know, I know. There's no pleasing me.)


In the meantime, while we still have debt, my frustration tends to be about our slow progress. Just the other day, Tim had to talk me down from a fit of misery. I had to leave enough in the bank for his insurance premium and for our rent, which left me enough to pay some basic expenses and nothing more. It was the second week in a row that our credit card debt was untouched.


I felt like an utter failure. Clearly, I wasn't pulling hard enough on the financial reins. It wasn't that we had to keep out a combined $1200 to pay for rent and insurance. Nope, it was a deep-seated flaw in me. I hadn't said "no" often enough, to my and Tim's "wants." It couldn't possibly be that living on $3100 is precarious, even for two healthy people. It must be my fault.


Tim was able to convince me I was being too hard on myself. He pointed out how far we've come. How he would still owe on student loans if not for me. How he never could have afforded his oral surgery and dentures if not for my financial know-how. How this was a tough period and next week we'd be able to pay down some debt.


I do so hate it when he uses logical arguments to defeat a perfectly good blind, emotional reaction.


Because once you're out of the situation, the whole thing seems pretty bewildering. Why did I automatically blame myself when I know I'm doing my absolute best? Why do I always let those feelings take such a strong hold?


But while you're in the emotions' chokehold, it all makes perfect sense. As far as you're concerned, you're being perfectly logical. Or, perhaps you know you're overreacting, but can't do anything to stop it. Either way, you get swept up in the moment -- and the rationale, whether it's rational or not.


So look at all your financial plans: the budgets, the list of debts, the thought of spending (both necessary and frivolous). See how you react to each of these. Think back to moments when you slipped out of frugality mode -- or when you slid to the complete "penny pinching miser" end of the frugal spectrum. Think about the catalysts. Figure out what's behind those emotions.


We can try to be logical about money, using budgets and savings plans and plenty of frugal hacks. But until we understand 1) that we react to certain stimuli in an irrational manner and 2) why we react that way, we will never be truly financially wise.


Because I define financial wisdom as the ability to lead a full life. One that isn't consumed by debt, but neither is it consumed by some primal, grasping fear at the prospect of parting with even a single cent.



How do your emotions affect spending? What techniques do you use to minimize their impact? Have emotions ever affected your spending in a positive way?