What Causes Overspending, And How Can You Stop It?

You make your way to Target to pick up some toothpaste. Fifteen minutes later, you’re walking out with two candles, a graphic tee, a new water bottle you didn’t need, and finally, the toothpaste. Don’t worry: it’s not just you. This type of impulse buying is something most of us do without giving it a second thought. But there’s a psychological reason behind that unplanned use of the credit card. So, why do we overspend? And more importantly, what can we do about it?

Why Shopping Feels So Good

First, let’s talk about your brain. When you come across something new and exciting, your brain signals light up with dopamine, the neurotransmitter responsible for pleasure and reward. Dopamine also spikes before you buy, giving you that anticipation of a reward. That means the act of shopping itself is what gives you the shopping high, similar to instant-reward behaviors like eating sugar or scrolling on TikTok. Shopping gives your brain a rush of feel-good chemicals, and once your brain learns that spending leads to more dopamine, it wants to do it again and again.

Cognitive Biases That Break The Bank

Now, let’s take a look at some of the cognitive biases in your brain that drive financial decisions that feel good at the moment but hurt later. First, we have the present bias. We naturally prioritize the present over the future. This is why it feels easier to spend $100 on a concert tonight than to put that $100 into a retirement fund. Even if we know saving is smarter, the future feels too far away for us to care about it just yet. On the other hand, the joy of buying something right now is much more enticing and rewarding.

Another cognitive bias is the anchoring effect. If you’re browsing for headphones, and you see a pair that was priced initially at $299 but now marked down to $149, an illusory effect will warp your mind. Even if $149 is still more than you wanted to spend, your brain perceives it as a great deal because it’s tied to that original $299. You are tricked into thinking you’re saving money.

Next, we have the scarcity bias. When you see “Only three left in stock!” or “Sale ends in 2 hours,” your brain panics in fear of missing out on something that seems to be rare or high in demand. Scarcity makes things feel more valuable, even if they’re not. You might rush to buy something just because you think it won’t be available tomorrow.

Finally, we have the sunk cost fallacy. This one kicks in when you’ve already invested money or time into something. Let’s say you’ve paid $10 for shipping, and then the item you bought doesn’t quite work for you. Instead of returning it, you keep it because you already paid for shipping. That irrational logic keeps us spending and hoarding.

How Marketers Hack Your Brain

Marketers are aware of these biases, and they design shopping experiences to capitalize on them. Everything from lighting to music to scent is designed to keep you shopping and browsing. Ever wonder why stores put essential items like milk or batteries way in the back? It’s so that you have to pass everything else first. On the way, you’ll probably grab a few things you didn’t intend to buy.

Online, companies get even sneakier, using personalized ads that take into account your browsing history; “buy now, pay later” options that make purchases feel less financially daunting; countdown timers and “flash sales” to make you act hastily and without thought; and widgets like “customers who bought this also bought…” to encourage bundling.

Emotional Spending

Overspending can also be driven by emotion. Retail therapy is real. People shop to cope with stress, boredom, anxiety, and loneliness because buying something new gives a temporary sense of control or happiness. However, studies have shown that while emotional spending can reduce sadness in the short term, that emotional boost can fade away just as quickly. And if spending causes financial stress later, it can exacerbate the situation.

This is especially true in times of economic uncertainty or personal instability. During the COVID-19 pandemic, for instance, online impulse purchases skyrocketed as people searched for comfort.

How to Outsmart Your Spending Urges

Thankfully, once you understand the mechanisms behind impulse buying, you can take steps to protect yourself. Here are a few strategies that work:

1. Make a 24-Hour Rule: If you see something you want, wait at least 24 hours before buying it. This pause lets the initial dopamine rush fade and gives you time to consider whether you really need it.

2. Unsubscribe and Unfollow: Marketing tactics work better than you think. Unsubscribe from promotional emails and unfollow accounts that make you feel like you’re constantly missing out on the hottest new products.

3. Shop with a List and Budget: Whether online or in-store, start with a list and stick to it. Set a budget in advance and track your expenses. Apps like Mint, YNAB (You Need A Budget), or PocketGuard can be super helpful.

4. Identify Your Triggers: Keep a spending journal. Write down what you bought, how much it cost, and what you were feeling at the time. You might notice patterns, like shopping when you’re stressed or bored, that you can address in healthier ways.

5. Use Cash When You Can: Studies show that people spend less when using physical cash compared to cards or digital wallets. That pain of parting with a $20 bill can make you think twice about whether the thing you are buying is worth it.

6. Create a Fun Fund: Don’t be too hard on yourself, as you don’t need to eliminate all spontaneous spending. Create a small, guilt-free budget just for fun purchases. This way, you’ll avoid overspending the resentment that comes with it.

Wrap-Up

We all overspend sometimes. But once you start noticing the subtle ways your brain and environment push you toward unnecessary purchases, you can begin to protect yourself and your wallet. So the next time you’re tempted by that must-have gadget or final sale, take a breath and ask yourself: Do I really want this? You might still choose to buy it, but this time, you’ll know that it was a conscious decision made by you.