How Your Brain Works Against You in Making Financial Decisions


We’ve talked about habit forming (and breaking) more than once on our blog – and for good reason. It’s easy to say we’re going to form new habits or break old ones, but actually sticking to them is a whole ‘nother story.

We vow to start working out, to eat healthier, to stick to our budgets. We say we’re going to give up that latte habit, or start packing lunch, or stop using credit cards. But our vows are almost always an exercise in futility. All it takes is one slip, which leads to another, which leads to another…

…it can get exhausting. So if we constantly fail at maintaining our new habits, why do we keep trying? Because we have hope.

Hope is our driver. It’s the thing that keeps us going even through the toughest of journeys. But hope alone is never enough to make new habits stick – and neither is willpower. What we need is to understand why our brains are fighting against us.

Because they are! Think about it. When you want to eat a healthy breakfast but spot that chocolate croissant at the pastry counter, all out war breaks out in your brain.

“No!”, you think. “You do not want that croissant. You do not need that croissant. Get your cup of coffee and go.” Of course, the whole time you’re in line, your eyes make their way over to that croissant. “Just this once,” your brain says. “You’ll stick to your diet starting tomorrow. Just get one last croissant in before you deprive yourself for good.” Then, if you’re anything like me, your brain adds, “Just think about how much better your morning will be if you start your day with that croissant. You deserve it.”

With this constant back and forth, it’s a miracle if you make it to the counter without breaking into a profuse sweat. Inner dialogues are frustrating and stressful. Whether you end up with the croissant or not, the inner conflict has already set your day off on the wrong tone. And that’s only the first bout of temptation you’ve seen in the day!

It’s time to fight fire with fire (or, in this case, fight logic with logic); to win the war your brain wages against you so you can make habits that stick. And when it comes to your finances, that war could mean the difference between paying off your debt and, well, not. To get to the bottom of how to win this war, we’ll first need to talk about how your brain works against you in the first place.

Why We Want Things That May Be Bad for Us

Part of the problem with this brain war is the fact that it makes no sense. “Brain”, you think. “Why are you arguing with me? You know I shouldn’t have that croissant. You know I shouldn’t swipe my credit card.”

Well, your brain doesn’t fully understand that. What your brain does understand is that this thing that you want is a habit you’ve created to make yourself feel good. And your brain wants you to feel good. In order to solve this issue, you need to create new habits. But before you can do that, you need to understand why these habits were created in the first place.

You could be hoping for that croissant because it’s Monday and, well, Mondays kinda suck. Or you may want to swipe your credit card because you’re feeling emotional or bored. Whatever the case may be, think about what your mental state was when temptation has hit you the hardest.

People spend money when they don’t intend to for a variety of reasons:

  • The thrill of the purchase
  • Feeling emotional
  • Not truly understanding the long-term impact of an impulsive buy

Desiring the Thrill of the Purchase

Let’s face it, shopping can be fun. Everyone loves buying themselves a present. It’s something to look forward to; something to get excited about. For some, it’s a way to fill the time.

Your brain feels a rush when you make a purchase – but you can get your brain back on your team by finding another way to give yourself a thrill. Are you filling your life with things that fill you up? That make you feel passionate, fulfilled, content?

It’s way too easy to get into a routine of work, home, gym, weekend, repeat. If this routine sounds familiar and you’ve taken to spending money for a thrill, then create a new thrill for yourself.

What’s your hobby? Hone it, spend time on it. Give yourself time just for you. Don’t have a hobby? Try new things! Hobbies and activities aren’t just for kids – not only do they give you a chance to do something just for you, they can even help you discover your inner self. Don’t deprive yourself of this opportunity.

Emotional Spending

Emotional spending – we’ve all been guilty of it from one time or another. (In fact, for me, emotional spending and emotional eating work together to bring down my budget and my healthy eating plan.) When you hit an emotion that makes it easy to swipe the credit card, dig deep to the core. Why are you feeling this way? What can you do to change it? Start laying some action steps to help. Then think about finding something else to fill you up in emotional moments.

If you can give your brain a feel good habit other than spending, it won’t be so hard to resist spending when you’re feeling emotional.

t to emotional spending that can be particularly dangerous – feeling that your spending can “fix” something. This happens to me all the time. I find a product that I’m sure will make my work day more productive (when I really just need more sleep), a class that can refine my skills (when all I really need is a confidence boost), or a product or clothing that will fix my skin/hair/body (when I really need to be happy with the way I am). It’s hard for me to say no in those moments because I’m so sure the purchase will fix the issue and therefore I’m convinced I’ll never have to make the purchase again.

You can probably imagine the beginning of a vicious cycle.

Frankly, I needed help with this so I asked my husband to stop me in my tracks when I get into fix-it mode. Now he’ll question my motives for the purchase if it seems suspicious. “What are you really trying to fix?” He’ll say. “Did you have a rough day at work? Are you feeling unsure about subject related to purchase?

Note: I asked for help on this. But it doesn’t mean I don’t get annoyed at him for asking me these questions. I’m a grown adult and don’t want to feel judged for my purchases – even when I asked for it. However, in the end, I always feel relieved that my husband gave me this gut check, realize he’s not judging me at all, and am glad that I avoided the purchase and had a chance to talk about the underlying issue.

You can’t escape being occasionally annoyed at an accountability buddy, but the end result is money saved and the deeper problem solved (or at least talked about). It really is a win/win.

Lack of Understanding the Long-Term Impact of an Impulse Buy

Another dangerous brain trick is thinking a one-time purchase is no big deal or isn’t that costly in the big scheme of things. While the individual price may not be much, it will be if you multiply it by ten more “no big deal” purchases. The little things add up, frustratingly enough.

Think back to that croissant. It’s Monday, it looks so good, and it only costs $2.50. No big deal. Then next Monday your brain follows the same path so you do it again. Then perhaps it’s a tough week so you buy it again on Wednesday…and Thursday…and Friday. Suddenly, in two weeks you’ve spent $10 on a seemingly no big deal $2.50 purchase.

Every dollar you spend matters. That doesn’t mean you should be so frugal that you deny yourself. That just means you should be aware of where your money is going and decide if each purchase you make fits into your goals. I’ve lost count of the times I looked at my end of the month budget only to say, “I spent how much on what??”

Don’t let this happen to you. Create a spending plan. Make sure your money is working for you. And when you see something that lights up the receptors in your brain, keep in mind the ultimate reward of sticking to your spending plan. It could be a house, a car, debt payoff, a trip, etc. Thinking of the reward will put your brain in a happy place that will hopefully override the happiness of that short term desire.

Creating More Mental Bandwidth to Make Better Financial Decisions

I mentioned that hope and willpower aren’t enough to get your brain to work with you on financial decisions. What you do need to get your brain to work with you enough mental bandwidth to process your alternatives to the gut reaction.

If you’re feeling deep stress or pressure, if you’ve been under a constant lack of sleep, or if you’re in a heightened emotional state, then you’re running on low bandwidth. Think about a computer with too many web pages open – the more you open, the slower the whole thing gets (and then it starts making creepy whirring noises and heating up to the point you think it’ll either explode or fly off into the sunset).

That’s your brain on low bandwidth, which is why it’s so hard to focus in those situations. You need to slow down the brain, close some of those web pages, find a way to be accountable for impulse reactions, and be present in the moment. For me, it’s counting to ten (or 100) or simply walking away and promising myself I can get the purchase later (and luckily I never end up going back for it). Or, if none of those things work, calling or texting my husband/mom/best friend before I swipe the card.

We can’t eradicate all of the stresses, pressures, and emotional situations we feel on a daily basis. But we can find ways to shut them down and be aware of the decisions we’re making in the moment. That way, we can get our brains to play on the same team and work with us, not against us.

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  • I’ve noticed that I’m especially spendy after a crazy work week. I think part of it is the reduced bandwidth you mention, and another part is feeling like I need to have something tangible to show for my work. I’m sure this counts as emotional spending!

    • Shannon_ReadyForZero

      Oh yeah, me too! That’s a good point on feeling the desire for something tangible to show for your work – that’s definitely something I can fall prey too if I’m not careful!