Have you ever bought something you did not need and then wondered why? Or did you create a budget that disappeared halfway through the month?
If so, then you are not alone.
Many of us want to manage their finances well, but emotions and habits can make it difficult. This suggests that our financial decisions often rely more on emotions than on facts.
Understanding this is a key first step to improving how we spend our money so that it feels good instead of regretful.
Interestingly, the latest data from The Guardian reports that 43% of UK consumers were cutting their daily spending due to lower confidence in the economy. This shows that our financial decisions are influenced more by our feelings than by calculations.
Behavioral finance helps explain why this happens. It’s not about lacking financial skills; it’s about being human. Recognising this can be an effective tool for change. It helps you manage your finances in a healthier way.
We, at Circadian Capital, offer clear financial advice that blends expert knowledge with real-world experience.
Let us look at how behavioural finance works and how you can use it to improve your spending habits in a way that works for you. Continue reading.
What Is Behavioural Finance?
Behavioural finance examines how people manage their finances rather than how they should manage them in theory. It mixes psychology and economics to explain why we sometimes make decisions that don’t seem logical, even when we know better.
Traditional finance assumes everyone makes smart, informed decisions. However, real life is more complex. Behavioural finance studies the emotions, mental shortcuts, and social influences that greatly shape our choices.
Understanding why we make our choices is important because it helps us take control of our lives. By learning to manage our habits instead of combating them, we can make better and more informed decisions.
How Behavioural Finance Can Improve Your Spending
Here are the steps that behavioural finance can improve your spending:
Step 1: Become Aware of Emotional Triggers
We usually buy things based on our feelings instead of our needs. You might shop after a stressful day or after seeing an ad that speaks to your fears and desires. Being aware of what triggers these feelings can help you find simple ways to pause before making a purchase.
Try giving yourself 24 hours before buying non-essential items. It’ll help you decide if you truly need it or if it’s just a momentary impulse.
To dive deeper into managing emotional spending, take a look at this article ‘Emotional Spending: Understanding the Link Between Shopping and Wellbeing’ on understanding emotional spending triggers.
Step 2: Reframe Immediate Gratification
The urge for quick rewards is strong, but it can be managed. Concentrate on long-term benefits instead of short-term gains.
When you resist buying something unnecessary, focus on the bigger picture like saving for your next vacation or boosting your savings.
When we change our thinking, we start to value long-term benefits just as much as fast ones.
If you’re looking for tips on handling the urge for instant rewards and staying focused on your long-term goals, check out this blog, ‘Delayed Gratification Is the Key to Saving.’
Step 3: Reorganise Your Spending Habits
Consider when you purchase things out of habit rather than your needs. For example, you might take out every Friday night, not because it is special, but because it’s your routine.
One way to improve your spending habits and cut back on unnecessary expenses is to make simple changes in your lifestyle. Maybe try cooking meals at home or find more affordable options that still allow you to relax after a busy week. Think about the change, not as a downgrade, but as an upgrade towards a better future without the financial stress. The goal isn’t to stop living your life, but to make smarter choices that help you feel better in the long run.
First, identify what triggers your emotions. Then, try to rethink your need for immediate satisfaction. If you struggle with certain habits, adjusting your spending can significantly improve them.
The Surprising Psychology Behind Your Money Decisions
It isn’t always clear the reason why we allocate our money as we do. However, from the perspective of behavioural finance, we can identify several recurring trends:
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Anchoring
Ever felt attracted to a “sale” because the original price was much higher? This is called anchoring. We pay attention to the first price we see, like a big discount, and use it as a reference point. This can make it harder to judge the true value of the item.
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Loss Aversion
We feel the pain of losing something more than the happiness of gaining something new. This is why we hold onto investments that are not performing well or avoid taking financial risks. We fear losing what we already have more than we hope for upcoming rewards.
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Instant Satisfaction
A key factor to consider is our tendency to favour quick rewards. We usually choose options that provide instant satisfaction instead of thinking about long-term benefits.
For example, we might buy a daily coffee rather than save money for a vacation. Quick rewards feel more real, making it easier to justify impulsive spending.
Surprisingly, recent data from the Office for National Statistics shows that UK spending on Revolut debit cards increased by 8%. This illustrates that more people are choosing easy digital payment options, which can lead to impulsive buying.
You need to understand that these behaviours do not make you irresponsible. They just show you are human. They really don’t mean you are failing financially but rather reflect common patterns that we can learn to understand and manage.
How Self-Compassion Supports Healthier Money Habits
When thinking about how to improve spending habits, it’s easy to feel guilty about past mistakes. Many of us have spent too much at times or missed opportunities to save. Remember, it’s not about being perfect.
Being kind to yourself is crucial. Acknowledge your mistakes and use them as chances to learn. Self-compassion helps you handle your money better without guilt or shame.
For example, tracking your spending each week or pausing to consider big purchases can be more helpful than strict budgeting. This reflection is key to changing your habits.
If you feel unsure, remember that in 2025, 22% of adults in the UK had less than £100 in savings. You are not alone in this.
Thoughtful Guidance Can Make a Big Difference
Understanding why you spend money is important. Changing your spending habits, especially during tough times, can be difficult. That’s why having a financial professional can help a lot.
A financial advisor won’t tell you what to do. Instead, they will help you see and understand your habits. They can create a plan just for you without any judgment.
Having someone to guide you through tough choices can reduce stress. This support helps you feel more confident as you work on better financial habits.
Conclusion
Our approach to money can change. Behavioral finance demonstrates that our feelings, experiences, and surroundings greatly influence how we spend. The good news is that we can change our actions and make better decisions.
If your money habits are frustrating you, remember that real change doesn’t come from strict rules or cutting back too much. It comes from understanding yourself better and slowly improving.
You are not falling behind. You are not making errors. You are learning and that is what truly matters.