Emotional spending occurs when an individual spends money for the sole purpose of improving a mood. Some reasons people engage in emotional spending are to:

a) improve or maintain a mood,
b) cope with stress,
c) deal with loneliness, and
d) improve self esteem.

Individuals sometimes use emotional spending to manage problems because they believe it is healthier than binge eating, alcohol or drugs. However, emotional spending can be as dangerous as alcohol or drugs. If care is not taken, emotional spending can lead to financial ruin. Emotional spending can lead to spending money on unnecessary purchases, which reduces the amount of money available for meaningful purchases or necessary savings. The problem with emotional spending is that it adds up and eventually you spend more than you need to. (Follow the simple steps in Get Emotional Spending Under Control, to help.)

As with any other problem, the first step in dealing with emotional spending is to acknowledge that you are doing it. After that, try curbing your emotional spending by taking stock of what you own and calculating the cost of emotional spending on your finances. The best way to take a quick snapshot of your net worth is to create a personal balance sheet. After creating a personal financial statement, draw up a budget and be determined to stick to it. In your budget, be sure to include some miscellaneous cash for when you feel like spending outside the budget. Another way of stopping emotional spending is to find something else to use as an emotional boost or stress reliever. Research healthy activities that make you feel better, like exercise, reading, etc. Though it takes a lot of self control to curb emotional spending, it's worth it top avoid financial ruin.

To learn more about budgeting, be sure to read our related articles Get Your Budget In Fighting Shape, and Six Months To A Better Budget.

This question was answered by Chizoba Morah.

  1. Is Japan an emerging market economy?

    Japan is not an emerging market economy. Emerging market economies are characterized by low per capita incomes, poor infrastructure ... Read Full Answer >>
  2. Are Social Security payments included in the US GDP calculation?

    Social Security payments are not included in the U.S. definition of the gross domestic product (GDP). Transfer Payments For ... Read Full Answer >>
  3. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  4. What economic indicators are important to consider when investing in the retail sector?

    The unemployment rate and Consumer Confidence Index (CCI) rank as two of the most important economic indicators to consider ... Read Full Answer >>
  5. How do changes in interest rates affect the spending habits in the economy?

    Changes in interest rates can have different effects on consumer spending habits depending on a number of factors, including ... Read Full Answer >>
  6. What is the difference between an OEM (original equipment manufacturer) and a VAR ...

    An original equipment manufacturer (OEM) is a company that manufactures a basic product or a component product, such as a ... Read Full Answer >>
Related Articles
  1. Budgeting

    How To Save Money When Moving

    Moving doesn't have to be as expensive as you think. Here are some great ways to save money on moving costs.
  2. Stock Analysis

    How Expensive Is Whole Foods, Really?

    Learn about Whole Foods Market, Inc., and discover how Whole Foods pricing actually compares to that of other grocery store operations.
  3. Budgeting

    The Hard Way We Pay For Convenience

    Convenience is a luxury. However, any cost-conscious individual should be aware of these ridiculous ways we pay for convenience and how to avoid them.
  4. Mutual Funds & ETFs

    Top 3 Consumer Cyclical Mutual Funds

    Obtain information on, and analysis of, some of the best performing mutual funds that offer exposure to the consumer cyclicals sector.
  5. Budgeting

    How to Cost Effectively Spend on Baby Clothes

    Don't let your baby's wardrobe derail your budget. These top tips help you to save money and spend wisely on baby clothes.
  6. Personal Finance

    College Students are Failing Financial Literacy

    Financial trends among college students are a cause for concern, prompting a renewed emphasis on financial literacy.
  7. Budgeting

    6 Cost-Effective Tips for Raising Your First Child

    The excitement of welcoming your first child to your family shouldn't prevent you from making good cost-effective decisions.
  8. Budgeting

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  9. Budgeting

    7 Kids Items You Should Never Buy Used

    Buying secondhand items is a great way to save money, but these seven kids items should not be bought used.
  10. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  1. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  2. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  3. Duty Free

    Goods that international travelers can purchase without paying ...
  4. Negative Option Deals

    A dubious business practice that involves supplying a typically ...
  5. G.19 Report

    A monthly statistical report from the U.S. Federal Reserve that ...
  6. Drip Pricing

    A pricing technique in which only part of a product or service’s ...

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!