Psychology of Money: How Our Emotions Affect Our Finances

Money, an essential aspect of our lives, goes beyond its tangible form. It holds a deep connection with our emotions, influencing our financial decisions and shaping our financial well-being. In fact, a study performed by Nobel Prize-winning psychologist Daniel Kahneman found that we make financial decisions based 90% on emotion and only 10% on logic.

Financial therapist and wealth counselor Marilyn Wechter further illustrates this through philanthropy. “Philanthropy isn’t just a strategy to reduce your tax liability, but a wonderful thing to do that’s usually motivated by emotion,” she said. The act of giving exudes happiness in the benefactor, even if it requires some sacrifice on their part.

Much like this example, understanding the psychology of money is crucial for gaining control over our finances and achieving long-term financial success. Let’s delve into the intricate relationship between emotions and money and explore how our psychological tendencies can impact our financial lives!


Do you practice retail therapy?

Emotional spending, often referred to as “retail therapy,” is a prevalent coping mechanism employed to alleviate feelings of sadness, stress, or other negative emotions. The act of purchasing items may provide temporary relief and a fleeting sense of well-being. However, relying on material possessions to fill emotional voids can initiate a destructive cycle of overspending and financial instability. The consequences become evident when the dreaded credit card bills arrive.

To break free from this detrimental pattern, it is crucial to develop healthier coping strategies. Engaging in physical activity, practicing mindfulness, or seeking emotional support are effective ways to cultivate a more balanced and constructive relationship with money.


One of the common emotional traps we often fall into is the allure of impulse spending to satisfy our immediate urges and desires. The exhilarating feeling of acquiring something new can provide a temporary high, but it frequently results in remorse after the purchase. To effectively manage this behavior, it is essential to grasp the psychological factors influencing our spending habits, including the need for validation. By gaining this understanding, you can take proactive measures to restrain your impulse spending.

A helpful strategy is to be intentional with your purchases and practice a waiting period of at least 24 hours before committing to significant expenses. This delay allows you to reassess the necessity and importance of the purchase, reducing the likelihood of impulsive decisions. During this time, reflect on whether the item truly aligns with your long-term financial goals and values.


Are you following social media accounts that frequently highlight their travel destinations and luxurious possessions? Humans are prone to comparison, and the age of social media has only amplified this tendency.

Witnessing others flaunting their extravagant lifestyles can evoke feelings of inadequacy, ultimately leading to excessive spending and financial strain. However, it is crucial to remember that each person’s financial journey is unique, and genuine financial success arises from aligning our actions with our individual financial goals.

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Engaging in self-examination is an effective way to prevent jealousy from influencing our financial decisions. It involves being completely honest and removing the influence of others’ opinions from the equation. By doing so, we can transform jealousy into motivation. Instead of fixating on what others have, shift your focus towards your own progress and cultivate a sense of gratitude for what you have achieved.


People who are more prone to guilt are also more inclined towards altruism. In the best-case scenario, this altruistic inclination motivates us to share our abundance with others through charitable contributions. However, in the worst-case scenario, it can lead us to spend money that we actually need for ourselves on others.

To prevent such situations and maintain a healthy balance, it is essential to establish limits. One effective way to avoid going overboard is by setting budgets for specific expenses, such as when giving Christmas or birthday gifts. By implementing a budget, we can ensure that our generosity aligns with our financial capabilities and responsibilities. Remember, being mindful of our own needs and financial limitations does not diminish the value of our altruistic intentions.


Emotions such as anxiety, shame, or fear can significantly contribute to financial procrastination and avoidance of money-related responsibilities. Failing to address these emotions and neglecting financial issues can have severe consequences for our long-term financial well-being.

We have the ability to overcome these obstacles and regain control over our finances. It starts with acknowledging and addressing the underlying emotions that hinder our progress. Seeking professional help and guidance is a valuable step in this process. In Singapore, there are various reputable financial advisers available, such as Singapore Financial Planners, Expat Advisory Group, Providend, and Synergy Financial Advisers. It is important to find an institution that aligns with your specific needs.

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In conclusion, our emotions and financial lives are deeply intertwined. By understanding the psychology of money and acknowledging the impact of our emotions, we can empower ourselves to make prudent financial decisions. Let’s embark on this journey of self-awareness, resilience, and financial empowerment, one step at a time.

Sources:1,2, & 3


5 Mind Tricks to Help You Stick to Your Budget

When it comes to spending less and saving more, it is tempting to bury our heads in Sentosa’s sand. The way we manage our finances today is entirely different from the way money was managed in the past. It is getting increasingly easier to spend money, and more challenging to save money.

When done right, budgeting can direct a series of clever financial choices to move you closer to the things you want out of life. Take the time to get this right at the start, to give yourself a massive advantage and benefit from the results for years to come.

Start by using simple brain tricks to help you stick to your budget.


Consider your savings account as another monthly bill. Start by allotting money towards your fixed expenses, followed by assigning a certain amount towards your future. You can use this fund either for your retirement or your future goals, but do not go out and blow it on things you do not need.

Saving for your future is just as important as paying your other bills. When you treat it that way, you will develop a wealth-building mindset.


The convenience of online banking and banking apps cannot be denied. Your banking app can show you the movements of your funds in real time. Moreover, you have the ability to input your debit or credit cards directly onto your phone to experience fast payment processes. When there is no barrier between you and your money, it becomes easier for you to spend more.

Place a barrier between you and your emotional shopping tendencies. Whether you are keen on putting a long passcode on your banking app or using two-factor authentication for your online banking, you will be less tempted to spend when barriers exist.


Your small, frequent purchases add up. Every time you buy a coffee or eat out, your ability to save decreases. It might not seem too much at the moment, but it adds up to a significant amount. Track your expenses by writing down every small purchase per month. This will increase your awareness and help motivate you to cut down on your spending.

You might be shocked to see the number at first. However, you will be able to recognize why you are struggling to save.


As you are walking down the aisle of the nearest grocery store, you find it difficult to resist the promotions from left to right. Control your spending by giving yourself 15 minutes to ponder about your potential purchase. Giving yourself 15 minutes will allow you to resist your impulsive purchases.

If you can, it is even better to wait for a full day or a week before making purchases. Remember that having a waiting period is the best way to train your brain.


We are creatures of habit. This is why people resist changing their insurance provider, telecommunications provider, and so on. There is a desire to keep everything the same and anything different can be perceived as a loss.

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However, staying in our comfort zone means that we are paying more for services than we need to. Pushing yourself out of it will allow you to shop for the best deals. Start with reassessing your mobile plan, before moving to your utilities, insurance, and other providers. Revisiting these plans on a yearly basis will ensure that you are maximizing your hard-earned money.

Sources: 1 & 2