Women's Money Wisdom

Episode 288: The Psychology of Money: Why We Overspend, Undersave, and Avoid Financial Decisions

• Melissa Joy, CFP® • Season 4 • Episode 288

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Why do so many of us struggle to follow through on the money habits we know are important? In this episode, Melissa Joy, CFP®, explores the psychology behind three common money behaviors:

  • Overspending – from emotional triggers to lifestyle creep and comparison culture
  • Undersaving – how present bias and scarcity mindset can sabotage long-term planning
  • Freezing – the shame and avoidance that keep us from making financial decisions at all

Melissa shares relatable examples and practical strategies to break free from these cycles. From setting up automatic savings, to creating “fun money” categories in your budget, to celebrating small wins, she explains how incremental progress can rewire your money story.

Resources & Mentions:

  • The Geometry of Wealth by Brian Portnoy
  • The Psychology of Money by Morgan Housel
  • The Behavioral Investor by Daniel Crosby

If you’ve ever felt stuck or ashamed about money, this episode will help you move forward with more self-compassion, awareness, and action.

The previous presentation by PEARL PLANNING was intended for general information purposes only. No portion of the presentation serves as the receipt of, or as a substitute for, personalized investment advice from PEARL PLANNING or any other investment professional of your choosing. Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy, or any non-investment related or planning services, discussion or content, will be profitable, be suitable for your portfolio or individual situation, or prove successful. Neither PEARL PLANNING’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. PEARL PLANNING is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. No portion of the video content should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if PEARL PLANNING is engaged, or continues to be engaged, to provide investment advisory services. A copy of PEARL PLANNING’s current written disclosure Brochure discussing our advisory services and fees is available upon request or at https:...

Speaker 1:

Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a certified financial planner and the founder of Pearl Planning. My goal is to help you streamline and organize your finances, navigate big money decisions with confidence and be strategic in order to grow your wealth. As a woman, you work hard for your money and I'm here to help you make the most of it. Now let's get into the show.

Speaker 1:

Welcome back to the Women's Money Wisdom Podcast. Today, I want to talk about money psychology. I want to talk about financial concepts and how they relate to how you think. I'm going to pick on three concepts why we overspend, why we under save and why we tend to freeze when it comes to money. And I hope in this conversation we may be talking about some issues that you think you have or are looking to overcome, but it may be that your own kind of financial hangups are different. But I'm going to examine things both with what the psychological triggers are, common situations where you may experience them, as well as strategies you can use to address these situations, and so through this, I hope we can give you some tools to talk through your own money triggers. So what I know and one of the reasons that we chose to have this episode is we had a community event where we just got to know people in town by having a booth where we had giveaways and we talked about referral planning. It wasn't really the purpose wasn't to get new clients. It was just kind of important to be part of the community at a recent festival to get new clients. It was just kind of important to be part of the community at a recent festival.

Speaker 1:

But people shared some of their thoughts about money as they learned what we do. And one woman said oh my gosh, I'm so embarrassed because I know I should get things done. I've got it on my to-do list, I'm going to get serious about it, but I just keep putting it off. And it made me think about all those barriers that people know that they have that get in the way of putting to work what you know you need to do and actually getting it done. So everybody knows that they should save. Everybody knows that they should, you know, make more than they spend. They know that credit card debt is bad. But even some people who can control for situations like that find themselves getting into circumstances and situations that would be less than desirable. And so let's just dive right in and introduce some concepts that we've been getting to know over the years. So psychology of money, behavioral finance, those are terms that get thrown around a lot and I think sometimes they can be overused, where just everything is a bias, and that might not be as effective. But let's just break down a few of these. You know kind of behaviors and what the psychological challenges are behind them so we can talk about how to overcome.

Speaker 1:

So the first why do we overspend? I will definitely you know as I'm kind of preaching from a pedestal or from the microphone mention to you that I love spending personally. So this might be an area that I would be much more comfortable saying put me in there than some others. Um, and so there are certain psychological triggers that may come um with spending. Um, some people eat when they feel emotional. Other people may be spending when they feel emotional.

Speaker 1:

This can be a source of stress relief, a source of entertainment. It can be identity signaling, kind of showing the world your success, especially in today's kind of age of social media. Sometimes there's lifestyle creep. So you may have said, oh, I'm always going to stay within this type of budget, but both because of changing needs but also, you know, changing signals from peers too you may drift where you start to spend on money that isn't as purposeful. Sometimes we live or often we live in a comparison culture where you can see what others are doing, how they're spending. You see all their travel on Instagram or Facebook how they're spending. You see all their travel on Instagram or Facebook and you're feeling the fear of missing out and you're making decisions based on that. I often see this kind of spending and then I also see people behind the scenes with actually going on in their lives and it can seem like everybody else has it all figured out. But a lot of that the people you're comparing to have their own challenges and, just like we talked about emotional spending, there can be a dopamine trigger and response when it comes to the thrill of a purchase. It could be short-lived, but your brain's reward center may be triggering you to really love and enjoy spending.

Speaker 1:

So what are some common situations? Maybe you've got a big windfall, a big promotion, a raise. Maybe you had a bad day. Maybe you're just bored. Perhaps it's a milestone celebration. I just went on vacation. Ironically, I did some shopping. That's something I enjoy while I'm traveling, but I ended up spending more shopping online while on vacation, probably just because I was out of routine and had more time. So it wasn't even the physical act of being on vacation and going to the shops in the place I was visiting. It was, you know, just maybe a little combo of that boredom and being out of routine, so definitely guilty as charged on that. Maybe you have a favorite place where you love to spend.

Speaker 1:

Well, what are some strategies to avoid? First of all, if you find yourself just constantly in a gerbil wheel where you are spending more than you make or you're getting into unexpected trouble with short-term debt credit card debt then getting serious about budgeting, even though budgeting, you know, can be considered a four letter word. Create some fun money categories within your budget, but make sure that you are able to have a game plan for how much you have to spend on necessities and also leave room for the investments that you need to make for your long term success. Sometimes you may need to put a pause on your spending, so leave things hanging in the cart. Get rid of the easy tools that you have to. You know, if you have your credit card memorized, you can always just type it in, or I know with Shopify, they just, you know, send you a code and it's practically on its way before you know it.

Speaker 1:

Give yourself breaks or put up barriers and boundaries so that you're not motivated to spend quite as easily. Consider using cash, so walking around with cash or using prepaid cards. Go through your gift cards that you haven't fit and make plans to spend those rather than spinning out of unbudgeted categories. And also track your feelings when you spend. Identify whether there are patterns, emotional triggers. And one other thing that I would add is review spending from the past and assess where there's spending that was worth it, that you bought something you were going to use, you had an experience that was really worthwhile and lovely. Or, in certain cases, there could be empty spending, just like empty calories, where you didn't really get much bang for your buck. Maybe you bought something that you thought you would use, but the tags are still on that kind of thing. So all of these are kind of strategies to address, now and over time, how you can do better.

Speaker 1:

Okay, part two why do we undersave? Well, there are so many reasons, but a few of the psychological triggers for not saving enough, not thinking long-term enough. In many cases, one is present bias. So this could be. You know you overweight the needs for today versus the needs for the future. When I work with people in financial planning, I often mention that my job is to work and maximize your life today, but also your life over time, and so a partner like a financial planner can often be someone who helps you see beyond the present.

Speaker 1:

Perhaps that's scarcity mindset, and I would say this is both why we under save and also why we over save. If you grew up in an environment where you experienced financial instability either in early years or at some points in your life, then this can definitely be a reason. Or something to consider is do you have a mentality where everything just seems so difficult based on those past experiences? Like I said, this can result in people over-saving and not spending enough currently, and also under-saving and spending too much currently. It all comes down to having real difficulty in planning over time and a lack of trust in kind of the systems that create more moderated, you know kind of goals. Sometimes you just feel overwhelmed or you don't really believe that you're going to be at a point where you can get to retirement age, for example, and so you just throw up your hands in the air and say, you know what, yolo might as well get it done now. Again, there's so much about undersaving or oversaving that comes with a lack of the ability to balance both present needs as well as future needs. So what are some common situations? Maybe you haven't signed up for your 401k or retirement account. Maybe you are not using the opportunity to make IRA or health savings account contributions. You might delay building an emergency fund and constantly find yourself, you know, kind of going back to the well with short-term debt like credit cards.

Speaker 1:

One of the areas that I really want to start talking about more on the podcast for those of you who have important people like your kids, that you really want to save for college is I find that sometimes the retirement picture is pretty darn good but there is no game plan to pay for college all at the same time. But there's not any flexibility in your eyes as to you know, is it negotiable as to whether you plan to pay for college? Because you know it depends for a family? But a lot of families are like no, I'm definitely paying for school. I just have no plan for how to write those checks, which are getting bigger and bigger way over, kind of a standard inflation rates that are already high. So I would put that in a category unto itself where people maybe have the right cash reserve, they maybe have a retirement plan that is totally workable, but they are completely dedicated to paying for college for their kids, but there's no money set aside and no game plan for how to make that work, and so certainly that is an important consideration.

Speaker 1:

So what are some strategies to overcome this? Well, don't put all your eggs in one basket. Don't only save for retirement or don't only build up cash. Some people are the flip side of what I just described. They're totally focused on their kids' college savings and they haven't done a lot for themselves. That can be a problem too. So don't put all your eggs in one basket. Do automate your savings. So get it set up so things just happen automatically when you get your paychecks. Have incremental goals and micro strategies. So you're not just you know kind of all or nothing. I'm just going to work on the college plan this year and we're going to go, you know, pedal to the metal. We need to save $30,000 this year.

Speaker 1:

Being incremental can be so valuable and important. Visualize your goals or use financial planning software where you can really see oh, if I'm able to save, you know, $300 a month over this amount of time, that will cover half of the cost of college, something like that and do celebrate your progress. So you don't have to be perfect, but if you're doing well over time, give yourself credit, whether it's an attagirl or a plan to have a rewarding experience. Do recognize how difficult it is to change a behavior like understating. And when you're making incremental progress, give yourself the encouragement. Don't always be a negative Nelly when it comes to your self-talk. Really, give yourself the positive encouragement that will make you continue to maintain the mindset that you are seeing results and are able to continue to focus on this change of behavior.

Speaker 1:

Okay, so part three. Maybe I should have put this first, because it probably has to do with one and two. But why do we freeze and avoid money decisions? I hear this so often with people I've known I need to get started and they actually are like apologizing to me as if it's not about them. And you know there shouldn't be a lot of judgment from other people. You know if you have intentions to get started and haven't, what I would encourage people to do if they're hearing from their friends or loved ones. Oh my gosh, I know I need to get started. It's so embarrassing, I'm so ashamed. It's like, well, how can I make you or help you to take the first step? But what are some of the psychological triggers for people feeling frozen?

Speaker 1:

First, I think it's really intimidating to learn and talk about money with confidence. Um, that's one of the ongoing themes for those of you that are radio listeners that, um, I just feel like we all need to acknowledge I hear it all the time. I couldn't, um, I I couldn't emphasize it enough. Um, we have some of the fear of making mistake. There's a lot of imposter syndrome when it comes to making decisions, when it comes to money. There's a lot of you should do this, you should do that. There's also a lot of encouragement that you should just DIY. You know, do it yourself.

Speaker 1:

And money can be complicated and not everybody is given the same tool set or level of interest in these types of topics, given the same tool set or level of interest in these types of topics. So what you're left with is a lot of shame, and that certainly can lead to avoidance. You may be in a situation where you just don't even know where to start. That's one of the reasons why I think it's so easy, or easier nowadays, to save in your 401k plan, because there's, like automatic enrollment, even automatic choices for how you invest. But when it comes after that which many people need, not just to have their retirement savings but other kind of savings vehicles just like there's too many choices, I don't even know what account I need to start with, and then I have to choose investments. No, I'm going to skip it, I'll just move on.

Speaker 1:

And so all of this uncertainty, lack of confidence, lack of self-esteem when it comes to money and finance can often really lead to both shame which is not a good feeling, as we all know as well as avoidance, where you just know it's on your list that it keeps moving to the next month and you know procrastination doesn't help when it comes to money. But what I would mention is you don't need to lament oh my gosh, I can't believe I didn't get started. Give yourself encouragement If you take that first step either schedule a meeting or take a course or get a financial accountability partner. That's something to be celebrated. And so often I hear that kind of shame narrative time and again from people well beyond when they've started to take positive action. So I think it's important to mention that.

Speaker 1:

So what are some common situations for this? Not opening a credit card or retirement statement. You just leave them in a pile. Delaying your decisions, whether it comes to insurance or, yeah, I know, I need to get my legal documents like my estate planning done or delaying big financial moves. Even career stalls can happen. That kind of relate to these just being frozen in time, even in a bad situation. Another example is just like you know that DIY is not going to be perfect for you, but you don't reach out for financial help. In some cases, it's even when you know who you plan to reach out to, and so you know. Fortunately, so many financial professionals nowadays offer you options to just schedule a meeting right off of their website. So hopefully we're making it easier to remove those barriers and boundaries to getting things done.

Speaker 1:

So how do you unfreeze? Well, first consider breaking everything into micro decisions. Don't say, oh, I need a full retirement game plan. Break everything into micro decisions. Don't say, oh, I need a full retirement game plan. Say, oh, I need to nudge up my retirement savings at the same time that I get a raise and I'll do that by 2%. That's a micro decision, it's done. It's a small thing that you could do in a 15-minute window when you log into your accounts, name your fears and acknowledge when you are stuck because of avoidance, because of shame Acknowledge oh, that's just the financial shame speaking. But let me see if I can do something positive to kind of shut it up for a while.

Speaker 1:

Work with an accountability partner, someone else who's really working on their money, or work with a professional, whether that professional is a financial psychologist. We've had them on episodes in the past. Of course I'm a financial planner and endorse the processes that certified financial planners use. Doing it yourself is not for everyone and there are some people that that's a perfect fit. But if you are someone who is completely stuck in shame avoidance, you know, sometimes I have phone calls with people and they say I know nothing about money and then they say I just want like as limited of a scope of engagement with you as possible. Well, that's probably not the best fit for someone who doesn't have the knowledge yet and really needs to dive in deep. You could create a monthly money date where, either with yourself, with your partner or a friend, you really start to work on money. So where do these patterns come from before we wrap up?

Speaker 1:

Well, money scripts can be something that you repeat over and over again, even from childhood. One of them I just mentioned I just don't, I'm not good with money. I don't know about money. I hear that so many times with women. You may feel fearful about making money decisions. You may have be successful and feel like it's greedy to you. Know. Plan for your financial success because you aren't used to dealing with wealth. Financial success because you aren't used to dealing with wealth.

Speaker 1:

Our money habits can be inherited. They can be something where I've heard people say nobody in my family is good at money. I don't have anybody who helped me learn about money, and so that can be a story from the past, a narrative, and maybe very true in your life, but it may be something that you're using as a crutch that gets in the way with appropriate action for yourself. I'd love you to reflect and if you, anyone would be willing to reach out what were your, what was money like for you growing up, and what are the money narratives or scripts that you find run constantly through your life because of your own money story, your invisible backpack, the rocks you carry in an invisible backpack that you always, you know, kind of circle back to when it comes to your money, life and your money story. So then, how do you rewire the cycle? How do you change the narrative? Well, you can change patterns.

Speaker 1:

I think knowledge is power, action is power and also relying on good, solid, fiduciary advice or partnership with professionals can be really powerful. This takes practice, it takes time, it takes self-acknowledgement and self-compassion. You cannot just, you know, be in a shame loop as you're trying to dig out, you know, kind of difficult money behaviors. Your goal, as always, is not just perfection. Instead, we really want to make progress. Nothing is ever going to be perfect. And we really want to make progress. Nothing is ever going to be perfect.

Speaker 1:

Your job, when you take care of your financial life, is not a one-time thing. You can't just set everything up, fix it and forget it. In most cases, you need to have a commitment over time. It's also not a full-time job, but that's definitely something to consider. Tools that can help can include, you know, mindful spending, tracking using budgeting apps, therapy and coaching. Perhaps you have therapy, but you don't talk about money in this relationship. There actually are financial therapists. Some of my favorite authors, too, when it comes to thinking about financial psychology, include Dr Brian Portnoy, as well as Morbin Housel and Daniel Crosby, so they all have great books.

Speaker 1:

When it comes to psychology of money and learning about your behavior with money, the differences between abundance and contentment really powerful concepts. So, as you've listened to this episode, I hope you'll take a minute to reflect on the money patterns that you have, whether they be the under save, overspend and freeze or other topics. What shows up most for you in your life and where would you like to focus next? Maybe you just choose one area that you want to take action on and we have so many episodes that relate to some of these topics and there's so many great resources that, if you find you've been in this shame spiral, I encourage you to acknowledge that cycle, acknowledge that money story, but then work on progress, incremental progress, by naming that shame spiral and then pivoting to actions that will help you be better with your financial narrative over time. And with that, I hope you have a great week and we'll be back next week.

Speaker 2:

Thank you for listening to the Women's Money Wisdom Podcast. If you found value in this episode, the best way you can support the podcast is to forward an episode to a friend or leave a review. Go to proplancom and the podcast link to get all the resources and links mentioned information purposes only. No portion of this presentation serves as a receipt of or a substitute for personal investment advice from Pearl Planning or any other investment professional of your choosing. Copies of Pearl Planning's current rent and disclosure brochure and form CRS discussing our advisory services and fees are available upon request or on our website platform at pearlplancom. The information that we share is meant to educate and inspire, not serve as Thank you own and those of our guests. They don't necessarily represent any organizations with which Melissa is affiliated. For more important disclosures, please go to our webpage at proplancom.

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Melissa Joy, CFP

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