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 article Get Your Budget In Fighting Shape.
This question was answered by Chizoba Morah.