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The Psychology of Money

July 18, 2023

Why is talking about money taboo?

Everyone needs it. Everyone uses it. Our society runs on it. Yet it is unlikely you know how much money your parents made or what your best friend makes. What your friends pay for rent or their mortgage, what your colleagues spend on holidays and days out. It’s one of those subjects that can bring up all sorts of emotions in people, both positive and negative. Which is possibly why it isn’t talked about. 

don't talk about money

The psychology of money refers to a person’s attitude, behaviours and decision making around all things financial. If you learn to understand yours it can change your spending and savings habits, relieve some of the anxiety around money and lead to a happier, healthier financial wellbeing.

Since starting to work at Bigmore Associates, I have developed an interest in the psychology of money. It’s something I have been aware of in myself and take for granted that I have a handle on. Though I am no expert in the field, I have done some research and wanted to share a few points and ideas on the topic which others might find interesting.

Emotional Connection

We all have some form of emotional connection to money. This is largely influenced by the financial circumstances of our upbringing as well as how money was managed, talked about, and understood in our family dynamics. If your parents were transparent about your financial situation and helped instil an understanding of the value of money you will feel differently about it than someone who had no idea what things cost, how money was allocated or the general way it comes in and goes out.

Paying attention to the trigger points around your spending can help you gain insight into how you feel about money. Do you penny pinch every time you hit the grocery store? Is this out of necessity because times are tight or were you brought up in a house where if it wasn’t on sale, you didn’t buy it? There is no need to pass judgement on yourself for the answer, it’s just about noticing the choices you make and why you are making them. This can help you get to the bottom of where your emotional connection sits.


Imagine you win £100 in the lottery. What are you going to do with that money? Will you see it as fun money and go spend it on a day out with the family?

Now imagine you worked a few extra hours in the office so your pay includes an extra £100. What are you going to do with that money? Will you view it in the same frivolous way you might have the lottery winnings, or will you put it in the bank as it was “hard earned?”

This sort of financial categorisation happens all the time. We take into account where the money came from, what we view its purpose as, as well as the emotional connection we have to it. Winning money might immediately make you feel a boost of confidence and pride in a way that the additional £100 from work did not. Even though it can be argued that feeling confident and proud of the extra time you put in at the office makes sense. Yet somehow, the excitement that comes from an unexpected cash influx gives us a bigger serotonin boost.

As a result, that money might be seen as existing outside of the everyday, normal financial requirements we have. This doesn’t mean you shouldn’t enjoy the winnings from a scratch card. It’s about highlighting the different ways we categorise money in our minds. It about understanding the way the psychology of money can impact a seemly innocuous decision.


Immediate Gratification

In today’s society immediate gratification is almost expected. Between on demand tv, amazon prime, uber eats and the internet generally, whatever you want or need is literally at your fingertips. How this applies to finances is two fold; it encourages impulse purchasing and makes long-term savings seem unattainable.

How often do you doom scroll amazon when you’re mindlessly playing with your phone only to remember that you ordered a panini press when it arrives at your door? A purchase you might have made simply because at some point you saw a travel video about the best paninis in Italy. (not saying this was me but…)

Indulging your urge for immediate gratification can also mean you end up paying more. If you want to buy an expensive item that you don’t have the cash already set aside for, there is buy now, pay later. Usually with a hefty interest rate attached. Doing this, you’ll end up spending more for the item than the sticker price. If you had saved the money first, possibly by putting aside the sum you would be paying each month for the loan, you can have the item for its actual value. This won’t feed your need in the immediate, but it will be kinder to your wallet and help develop your ability to defer your gratification.

Deferred Gratification

Deferred gratification also comes in handy when it comes to savings. Putting aside £20 a month right now doesn’t give the same feeling as spending it at the pub. But in the long run that money can grow, both with the consistent practice of saving and with the interest it gains. This can allow for a stronger retirement pot or less stress when you blow a tire unexpectedly. (again, not saying this was me but…) Either way, being able to save for your future or purchase a pricy item outright will feel gratifying. And likely more so than when you simply clicked a button and boom, it was there.

Don’t discount the fact that financial transactions are not as tangible as they once were. In the past, when it was common to pay for things in cash it was easy to comprehend how much of what you have is going out. Nowadays with the tap, tap, tap of contactless payments we might not even look at the total.

Keeping Up With the Jones'

Money breeds comparison. We look at what other people have, where they live, where they travel, whether they make or buy a coffee and we compare ourselves to them. We unnecessarily equate our value and success to what we perceive another person’s value and success to be.

What we do not know is, are they paying for these things outright or are they raking up thousands of pounds of debt to keep up with appearances? Is this money they have earned or money they have inherited? Do they enjoy their job? Are they happy and fulfilled? These are things we don’t often think about. We just look at their big, detached house and think “I wish that was me.” So, we might make the decision to take on a larger mortgage than we can afford simply to keep up with the Jones’.

It’s a dangerous and easy trap to fall into and is encouraged by the nature of consumerism and social media marketing. The message that having the fastest car, the right Church’s shoes and dining at the most exclusive restaurants is what gives you value and status as a person. The narrative is on things, not on emotions, personal sense of achievement or individual definitions of happiness.

Again, this doesn’t mean that you shouldn’t experience the finer things in life if you can afford to do so. It’s to encourage you to understand why you want those finer things, and to reassure you that you do not need to get down on yourself if they aren’t in your budget.

psychology of money

Guilt and Shame

Being embarrassed of past financial decisions can hold you back. You might have overspent on a credit card before you fully understood the implications of that debt. There might have been a missed opportunity to invest in a stock before it took off. You might feel guilty about spending money on yourself and always look for the budget option when you want, and can afford, something a bit more flash.

It is never too late to sort out your finances. It is never too late to start investing. It’s never unfair to treat yourself if you are in the position to do so. Don’t let negative feelings and experiences stop you from working on your financial well-being. As long as you are alive you will have financial needs. So take the right steps to ensure you are working towards the future you want.

Awareness is Key

The psychology of money goes far beyond these initial points. It is influenced by the past, the present and our aims for the future. There are elements of it that we can control and outside influences that we must learn to overcome. 

To understand your personal psychology of money the most important thing you can do is be aware. Aware of what your current motivations around your financial decisions are and aware of what you want them to be. Awareness might be, before you click “buy now” you check your bank account and ask yourself if you really need a new coffee machine just because it is smaller. Another perfect and simple way to practice awareness is making sure you know what the total is before extending your arm to tap your money away.

Take Action

Having a plan for your long-term goals and keeping them in mind when the impulse to spend comes up will also help. If you’re at a loss for where to begin, seek advice. A qualified financial advisor will help you make a plan for your money, but can also uncover what your financial pain points are. They want to know your goals and dreams for the future yes, but they also need to understand your fears and concerns around money. This information will be used towards designing your financial plan and bringing a sense of calm and confidence in the choices that you make moving forward.

It might seem like a big investment, but the point of investing is that you gain from it. To reap the rewards of a centred, self-assured sense of financial well-being, fill out the contact form below. One of our team of qualified financial advisors will be in touch to set up your free discovery call. From there, the sky’s the limit.

Article by Jill Rensing
Content Marketing Manager
Financial Wellbeing Enthusiast