Have you ever noticed that the way you spend money doesn’t match your goals?
Many people know what they should do with their finances, but something often gets in the way.
Money is not just numbers. It’s connected to our feelings, habits, and stories we’ve held onto for a long duration. From impulse buys to avoiding financial management, our relationship with money is personal and often unintentional.
According to The Investment Association, 43% of adults in the UK plan to set financial goals for 2025. This is a positive sign that more people are recognising their spending habits and are willing to make changes.
At Circadian Capital, we help you understand your financial behaviours. When you learn what influences your spending, you can develop more effective systems and establish lasting habits.
This article will explain the basics of money psychology and behavioural finance. It will help you understand what stops you from making better financial choices.
What is Behavioural Finance?
Behavioural finance is a study of how people make financial decisions in their everyday lives. Unlike traditional finance, which assumes everyone is rational and well-informed, behavioural finance acknowledges that people can be emotional, social, and sometimes act on impulse.
It examines the mental shortcuts we take, the emotions that influence our decisions, and the habits we fall into without even realising it. You might think you’re making a wise decision, but feelings like fear of losing money, the desire for quick rewards, or pressure from others can affect what you do.
Behavioural finance mixes psychology with economics. It helps explain the reasons why people often make poor financial decisions and shows how we can start to think about our decisions differently.
For example, you might postpone investing because the market appears “risky” or keep a costly subscription simply because you are used to it. These decisions aren’t solely based on logic; they are affected by past experiences, a sense of security, and fear of regretting a future choice.
Understanding these influences can help you see what shapes your financial habits. Once you recognise them, you can make a different decision.
How Can Behavioural Finance Improve Your Spending Habits
Here’s how behavioural finance can improve your spending habits:
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Understand Your Triggers Before They Trip You Up
A key point from behavioural finance is understanding what affects your decisions. Spending mostly starts not with math but with feelings, stress, or boredom.
You might often choose takeout after a long day or buy something when you’re feeling low. Recognising these emotional triggers is the first step to changing them. When you notice this pattern, ask yourself: “What do I need right now?” It might not be food or a new gadget. It could be relaxation, a friend, or just a moment of silence.
A recent survey found that 72% of consumers had at least one issue that caused them stress, financial loss, or wasted time. This shows how daily stress can lead to spending decisions based on emotions.
To better manage your spending, try the “pause rule.” Wait at least 10 minutes (or 24 hours) before making a purchase. This gives your emotional brain time to calm down, allowing your logical brain to take control.
You can also track your spending habits in a journal. Write down what you bought, how you felt before and after the purchase, and any reasons that influenced your decision. Over time, you will notice patterns. Once you understand these patterns, it will be easier to change them.
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Create Easy, Feel-Good Defaults
Many of us do not want to think about money all the time. That’s the reason why it is essential to set up systems that simplify the process. Behavioural finance suggests that taking the simplest path is often effective, so why not create a better one?
You can automate your savings, choose not to spend on certain days, or use apps that round up your purchases to save money. These methods can help you make better decisions without much effort. It’s about being perfect and making the smart decision, the easy one.
Here’s how you might start:
- Set up automatic transfers to your savings account every payday. Even saving £10 can build up over time.
- Create a separate “fun money” account for your leisure spending.
- Use browser extensions to block shopping websites when you feel emotional.
- Choose to receive paperless bills and reminders. This makes it easier to pay your bills on time and helps you avoid missing any payments.
The result? Less mental stress, better financial stability, and more confidence over time.
When your goals match the usual expectations, you won’t need to rely on willpower all the time. Your environment will help you more easily.
For more information on behavioural finance and how it improves your spending habits, we advise you to check out our latest blog: “What is Behavioural Finance and How Can It Improve Your Spending Habits?”
What Really Gets in the Way of Better Money Choices
Even with good intentions, we often hold ourselves back. Here’s a quick look at some common mental and emotional barriers that can prevent us from making smart financial decisions and how to overcome them.
Cognitive Biases Sneak In
Our brains often take shortcuts, which is helpful when crossing the street but can hinder us when budgeting. Cognitive biases, such as present bias (favouring quick rewards) and the sunk cost fallacy (continuing to invest in a losing cause), influence our decisions more than we realise.
Other examples include the following:
- Anchoring Bias: You accept the first price you see, even if it’s not the best deal.
- Loss Aversion: You avoid a slight loss to protect a bigger gain.
- Confirmation Bias: You search for information that backs up your current views on money.
These hidden patterns can mislead you. But when you notice them, you can address them.
Ask yourself if your decision is based on facts or fear. “Am I letting past costs sway my current choice?”
To learn how these biases can impact your finances and how to spot them, you can read this article: 5 Cognitive Biases That Sabotage Your Budget. Get better knowledge on these biases.
Emotional Spending Is Often a Coping Mechanism
We’ve all been there like purchasing something on a tough day to feel better. Emotional spending helps us to cope with stress, sadness, or boredom. The problem is that the joy is short-lived, while the financial impact lasts longer.
Instead of being hard on yourself, take a moment to look at emotional spending with curiosity. Think about how you felt before you clicked “buy now.” Could you have met that need differently?
Creating a list of activities that bring you comfort without incurring expenses can be helpful. Here are some ideas:
- Go for a walk
- Call a friend
- Watch a feel-good movie
- Write down your feelings
When your brain wants a break, having these options ready gives you something to do instead of shopping.
To understand why we spend emotionally and how to change this behaviour, you can read a blog “Why Emotional Spending Happens (and How to Stop It)” and find out the solution.
Avoidance Feels Safe, But It’s Costly
Sometimes, the main problem with money isn’t what you spend; it’s what you avoid. Ignoring bills, putting off savings, or delaying planning might feel easier at first, but it adds stress as time passes. Many people avoid dealing with money, mainly if it has caused them anxiety or shame in the past.
Avoidance can show up in different ways, like:
- Not checking your bank balance.
- Keeping unopened bank statements in a drawer.
- Delaying financial talks with your partner.
What can you do? Start with small steps. Choose one task, like checking your account balance just once this week; and do it without judging yourself. The goal isn’t perfection; it’s about feeling more secure and in control over time.
If you struggle to overcome this avoidance, consider consulting a financial coach or a mental health expert. Avoiding money matters often comes from deeper issues, and you don’t have to handle it alone.
To understand why this occurs and how to deal with it, you can learn about the science behind money avoidance and anxiety through this guide: The Science Behind Money Avoidance & Anxiety.
The Power of Financial Self-Awareness
Managing your finances starts with understanding yourself. Your “financial story”, the messages you learned growing up, shapes how you handle money today.
Did someone tell you that “money doesn’t grow on trees” or encourage you to “spend it while you have it”? These ideas can stick with you and impact how you save and how you feel about spending money on yourself.
Think about these questions:
What lessons about money did I learn as a child?
How do I feel when I think about budgeting or investing?
Do I view money as a means of safety, freedom, worry, or power?
This is not therapy, but it can still be helpful. When you recognise your beliefs about money, you can change them. Understanding your feelings can help you make financial decisions that match who you are, rather than just relying on numbers.
Behavioural Nudges That Actually Work
Sometimes, we don’t need a complicated budget plan, just a simple nudge in the right direction. These “behavioural nudges” are small actions that help us build better money habits without overhauling our lives.
Here are some that work:
- If you are planning a vacation, place a picture of your destination next to your savings jar or in your savings app.
- Instead of calling it “savings,” try a few names like “Emergency Fund” or “My Flat Deposit.” This can help keep you motivated.
- Pick one day each week to avoid spending money. Over time, this encourages mindfulness and creativity.
- Combine an activity you enjoy, such as listening to your favourite podcast, with reviewing your finances each week.
- Share your savings goals with a friend. It works even better if they have their own goals. Holding each other accountable is key.
These nudges make things easier, not harder. You don’t need more willpower; you need better signals.
A Mindful Approach to Financial Freedom
Understanding and changing your spending habits is important for managing your money wisely. Being mindful can help reduce stress and support your financial planning. When you pay attention to your buying choices, you gain a better understanding of your needs, wants, and feelings.
By making careful choices, you can also save and invest more thoughtfully. Instead of buying things on impulse, mindfulness enables you to reflect on what truly brings you happiness and well-being. This is especially important for major purchases, such as a house or a car, where a careful plan ensures your decisions align with your long-term goals.
Bringing mindfulness into your financial planning means more than just cutting costs. It means investing in a way that has purpose. By focusing on what adds value to your life, you can better align your financial situation with your values.
Mindfulness can help you make better spending decisions and practice delayed gratification. This skill is very important for saving and investing. By taking a moment to consider your purchase, you can focus on the long-term benefits instead of immediate desires. This leads to better financial habits, like saving for retirement and establishing an emergency fund.
Mindfulness can also reduce emotional influences and outside stress. This empowers you to take control of your finances and improve your overall financial health.
Conclusion
Understanding money and our behaviour around it can help us know ourselves better. When you notice patterns in your spending, you can stop fighting against them and start working with them.
By identifying what triggers your emotions and creating systems to meet your goals, you can make long-lasting changes, even with minor adjustments. You don’t need a perfect budget or a complete lifestyle overhaul. Just a bit more awareness, consistency, and kindness toward yourself can make a difference.
You are not “bad at managing money.” You are a person. When you understand your habits, you can better influence your future, not just your finances.
Take a breath, choose one small change today, and believe that progress is possible, even if it’s just one step at a time.
When you understand your financial habits better, you will feel more confident and in control of your finances. That’s when real change begins.