April 10, 2025 • 16 mins
In this episode of The Wealth Effect, we dive into the hidden psychology of spending. Why do we buy things to feel in control? To signal who we are? To avoid discomfort or regret? From the illusion of control to the trap of convenience and the fear of missing out, we explore the unseen forces that influence where our money goes and why it often slips through our fingers.
You’ll learn about:
- The emotional triggers that drive impulsive purchases
- The role identity plays in shaping your financial habits
- How marketers use anchoring and urgency to influence your decisions
- Why letting go of things is harder than it seems and what that reveals about us
- How small conveniences come with a high hidden cost
This isn’t just a conversation about money. It’s a deep dive into how you think and how you can shift your mindset to spend with intention, build real control, and use money as a tool to build a life that reflects your values.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome back
(00:00):
to another
episode of The Wealth Effect.
Today we're talking about the
psychology of how we spend money.
We like to think that our
financial decisions are rational.
That we buy things
because they make sense.
Because they
serve a purpose.
But in reality, most of our
spending isn't driven by logic.
It's driven by emotions, habits, and
(00:22):
deeply ingrained beliefs that we form
long before we ever had
a dollar to our name.
Think about the last
purchase you made.
A coffee on the
way to work.
A new gadget you convinced
yourself is essential.
A trip you justified as
a well-earned reward.
(00:44):
Was that decision
purely about value?
Or was there something
else behind it?
Maybe comfort, status,
nostalgia, or even stress.
Money is never
just money.
It's a reflection of who we are, how
we see ourselves, and what we think
(01:04):
will bring us happiness,
security, or meaning.
So today we're going to explore the
hidden forces that dictate how we spend.
We're going to talk about shifting your
mindset just a little to help you take
back control, build wealth, and use
money as a tool rather than a trap.
(01:27):
If you don't understand why you spend the
way you do, you'll always be at the mercy
of your impulses.
And in a world designed to make you
spend, that's a dangerous place to be.
Let's fill
your pocket.
Section 1 The Illusion of Control Why
We Spend to Feel Powerful Control is a
(01:49):
fundamental
human need.
When we feel like life is spinning out
of control, whether it's in our careers,
relationships, or even just the endless
stream of uncertainty in the world,
we look for ways to anchor ourselves,
to reclaim a sense of power.
(02:09):
For many of us, spending
money becomes that anchor.
Think about it.
When the world feels overwhelming,
a shopping trip, an online order,
or even a seemingly minor purchase, like
an expensive coffee, can feel like an
act of taking
charge.
You decide.
(02:31):
You click
the button.
You walk out of the store with
something tangible in your hands.
In that moment,
you feel control.
But is it?
The illusion is fleeting because after the
initial high wears off, reality sets in.
The stress, the frustration, the deeper
problem, the thing you were actually
(02:53):
trying to escape
from, still lingers.
Worse, now that there
might be a new problem.
Financial anxiety, guilt, or even the
realization that you purchased something
that didn't actually
change anything.
There is a
term for this.
Hedonic adaptation.
The idea that external pleasures,
(03:15):
no matter how thrilling at first,
quickly lose
their impact.
The new car, the designer bag,
the latest gadget, it
all becomes ordinary.
And so we seek another hit, another
purchase, another illusion of control.
But what if, instead of trying to buy
control, we learn to cultivate it within?
(03:39):
What if, when we felt the impulse to
spend, we paused and asked ourselves,
what am I actually
trying to fix?
This is about reclaiming
true agency over your life.
Not just about choosing how you spend your
money, but choosing how you respond to
(03:59):
discomfort in
the first place.
Because real control, the kind that
lasts, doesn't come from what you buy.
It comes from how you think, how you act,
and how you navigate, the
things money can't fix.
Section 2.
The price
of identity.
How we spend to
prove who we are.
(04:19):
Who are you?
It sounds like a deep philosophical
question, but on a practical level.
We answer it every
day with our wallets.
We buy things not just for their
utility, but what they say about us.
The clothes we wear, the car we drive,
the coffee we order, the tech we use,
(04:43):
it's all signaling.
A way of reinforcing an image, a
narrative, a story about who we are,
or who we
want to be.
Take fashion,
for example.
Someone who buys luxury, brands
isn't just paying for quality.
They're paying for status, recognition,
(05:05):
for the feeling of being someone who can
afford these
things.
The minimalist, who only wears neutral
toned colors, that's a statement too.
One of restraint, of thoughtfulness,
of rejection, of consumer excess.
It's not just
about what we wear.
The adventurer spends money on travel,
(05:28):
and gear, because that's who they see
themselves as.
The entrepreneur invests in the latest
productivity tools, because success is
part of their
identity.
The intellectual buys rare books, the
foodie seeks out high-end restaurants,
the fitness enthusiast prioritize
(05:48):
premium gin memberships.
There's nothing inherently
wrong with any of these choices.
The problem arises when we start buying
things, not to enhance who we truly are,
but to prove
it to others.
Because here's the thing, no purchase
can make you something you're not.
(06:09):
You don't become an athlete, just because
you bought an expensive
pair of running shoes.
You don't become a successful
entrepreneur, because
you have the latest tech.
You don't become sophisticated,
because you wear designer clothes.
Your identity is built through
action, and not through consumption.
(06:29):
Seneca warned against the illusion,
that wealth and status define us.
Saying that, the truly rich man is one who
needs little, not the one who owns much.
Your identity isn't
something you can buy.
It's something you build, not with things,
(06:50):
but with choices, values, and the way you
live when no one
else is watching.
Section 3.
The Endowment Effect There's a
strange quirk in human psychology.
Once we own something, we assign it
more value than it objectively deserves.
This is the endowment effect, And it's the
(07:12):
reason you hesitate, before getting rid of
that old jacket
you never wore.
Why you refuse to sell that barely used
exercise bike, for less than you paid for.
And why companies know, that if they
can get you to take something home,
even on a trial basis, you're
far more likely to keep it.
(07:33):
Ownership changes
perception.
When something belongs to us, we stop
seeing it as just another
object in the world.
It becomes
our object.
And because of that, we
unconsciously inflate its worth.
This isn't just
about money.
It's about identity.
Everything we own carries a story, a
(07:54):
meaning, a reason it
comes into our lives.
Maybe you bought those shoes, because you
imagined yourself, going
to more elegant events.
Maybe that piece of exercise equipment,
represents the healthier version,
of you, that you
want to become.
Maybe that book, sitting unread on your
(08:15):
shelf, makes you feel, the kind of person,
who will one day,
finally read it.
The things we hold on to aren't
always a reflection of who we are.
Sometimes, they're a reflection
of who we thought we'd be.
That's why letting go
feels so uncomfortable.
It forces us to confront the gap
(08:37):
between our expectations and reality.
We resist admitting that maybe we never
really needed that thing
in the first place.
So, how do we break
free from this trap?
A simple thought
experiment.
The next time you find yourself struggling
to let something go, whether it's a piece
of clothing, a gadget, or even a financial
(08:59):
investment, ask yourself
one simple question.
If I didn't already own
this, would I buy it today?
If the answer is no,
why are you keeping it?
The ability to let go
is a form of freedom.
When you detach your sense of self from
what you own, you begin to see your
(09:19):
belongings as what they
truly are, just things.
Decluttering isn't just
about tidying up your space.
It's about decluttering your mind,
freeing yourself from the past
expectations, and making room for
what truly adds value to your life.
Because in the end, the things
(09:39):
you own shouldn't own you.
Section 4.
The Hidden Cost of Convenience Why We
Pay More to Do Less There's a reason
convenience is one of the most
powerful forces in modern spending.
It's not just about ease,
it's about effort avoidance.
We are wired to
conserve energy.
(10:01):
Our brains evolved to
prioritize efficiency.
In the past, this
instinct kept us alive.
Today, it's what makes us willing to
pay extra for same-day shipping, food
delivery, and pre-cut
vegetables at the grocery store.
It's why we subscribe to services that
automate things we could do ourselves.
(10:23):
It's why we grab a coffee on the way
to work instead of making it at home.
We rarely stop to calculate
what this actually costs us.
A $5 coffee doesn't
feel like much.
Neither does paying for an
extra Uber instead of walking.
or subscribing to another streaming
service because it's only $10 a month.
(10:46):
But multiply that over a year, a
decade, and a lifetime, this is how
small, harmless spending decisions
turn into financial quicksand.
Not because any single purchase is
inherently bad, but because collectively,
they create a pattern, one that
quietly drains your wallet.
(11:07):
Paying for convenience
isn't always a bad thing.
Sometimes, time is more
valuable than money.
If an expense genuinely improves
your life, saves you hours of effort,
or allows you to focus more on meaningful
work, it can be a smart choice.
The problem is when we pay
(11:29):
for convenience mindlessly.
When we stop questioning whether
the trade-off is actually worth it,
spending isn't just about
money, it's about intention.
Choose convenience wisely, because
every choice comes with a hidden price.
Section 5.
The Anchoring Effect Imagine walking into
(11:52):
a store, seeing a jacket priced at $200.
But wait, it's
on sale for $80.
That's a $120
discount.
A steal, right?
But ask yourself, was that
jacket ever really worth $200?
Or was that number just
a psychological trick?
An anchor planted to make
$80 feel like a bargain.
(12:14):
That's the
anchoring effect.
We like to think that we make rational
financial decisions, but in reality,
our brains are laced into
the first number we see.
But in reality, our brains latch onto
the first number we see and use it as a
reference point.
Whether that number is meaningful or not,
(12:36):
retailers know this bias well and they
exploit it
relentlessly.
And it's not
just shopping.
Anchoring influences big
financial decisions too.
The cost of falling
for anchoring.
The problem with anchoring
isn't just that we overpay.
It's that we lose sight
of what we actually need.
Because a deal isn't a deal if it
(12:57):
convinces you to spend money you didn't
need to spend in
the first place.
Section 6.
The fear of regret.
We've all
been there.
You see a limited time deal, a product
that's almost sold out, or a big sale with
a countdown timer
ticking away.
Your heart
speeds up.
You feel the
(13:17):
urge to act now.
Because if you don't,
you might miss out.
This is the fear
of regret inaction.
Psychologists call
it regret avoidance.
And it's a major driver
of impulse spending.
We buy things not just because we need
them, but because we fear that if we don't
(13:38):
buy them, we'll
regret it later.
The regret paradox.
Ironically, this fear of regret often
leads to the very thing
it was trying to avoid.
Actual regret.
Retailers understand this deeply,
which is why they engineer shopping
experiences
around urgency.
(13:58):
And we fall for it because we don't
like to feel like we've missed out.
How to outsmart
regret-driven spending?
The antidote to impulse
buying isn't willpower.
It's pause and
perspective.
The 24-hour rule.
If you feel the urge to make a large
purchase immediately, wait a full day.
(14:21):
If you still want it after 24 hours, it's
more likely to be a deliberate choice
rather than an
emotional reaction.
The future you test.
Ask yourself, a week from now,
will I still feel happy
about this purchase?
If the answer is
uncertain, don't buy it.
(14:41):
Reframe the fear.
Instead
which regret is worse, missing a deal or
wasting money on something unnecessary.
Wealth isn't about
grabbing every opportunity.
It's about knowing which opportunities
(15:03):
are the ones that are actually worth it.
So there
you have it.
Some of the psychological
forces that shape how we spend.
From the desire for control to the role of
identity, from convenience spending to the
fear of regret.
Our financial decisions are rarely
just about dollars and cents.
(15:26):
They're about our emotions, our habits,
and the hidden biases that influences us
without ever
realizing it.
The moment you start to recognize
these patterns, you regain control.
You stop reacting and start
making intentional choices.
You shift from spending mindlessly
(15:47):
to spending with purpose.
Because money
doesn't define you.
It doesn't
control you.
But if you don't understand how it works,
both in the world and in your mind,
it'll always feel like it's
slipping through your fingers.
Thank you for tuning
in to The Wealth Fact.
I hope these insights help you
build a better financial future.
(16:07):
Until next time.
Welcome back
(00:00):
to another
episode of The Wealth Effect.
Today we're talking about the
psychology of how we spend money.
We like to think that our
financial decisions are rational.
That we buy things
because they make sense.
Because they
serve a purpose.
But in reality, most of our
spending isn't driven by logic.
It's driven by emotions, habits, and
(00:22):
deeply ingrained beliefs that we form
long before we ever had
a dollar to our name.
Think about the last
purchase you made.
A coffee on the
way to work.
A new gadget you convinced
yourself is essential.
A trip you justified as
a well-earned reward.
(00:44):
Was that decision
purely about value?
Or was there something
else behind it?
Maybe comfort, status,
nostalgia, or even stress.
Money is never
just money.
It's a reflection of who we are, how
we see ourselves, and what we think
(01:04):
will bring us happiness,
security, or meaning.
So today we're going to explore the
hidden forces that dictate how we spend.
We're going to talk about shifting your
mindset just a little to help you take
back control, build wealth, and use
money as a tool rather than a trap.
(01:27):
If you don't understand why you spend the
way you do, you'll always be at the mercy
of your impulses.
And in a world designed to make you
spend, that's a dangerous place to be.
Let's fill
your pocket.
Section 1 The Illusion of Control Why
We Spend to Feel Powerful Control is a
(01:49):
fundamental
human need.
When we feel like life is spinning out
of control, whether it's in our careers,
relationships, or even just the endless
stream of uncertainty in the world,
we look for ways to anchor ourselves,
to reclaim a sense of power.
(02:09):
For many of us, spending
money becomes that anchor.
Think about it.
When the world feels overwhelming,
a shopping trip, an online order,
or even a seemingly minor purchase, like
an expensive coffee, can feel like an
act of taking
charge.
You decide.
(02:31):
You click
the button.
You walk out of the store with
something tangible in your hands.
In that moment,
you feel control.
But is it?
The illusion is fleeting because after the
initial high wears off, reality sets in.
The stress, the frustration, the deeper
problem, the thing you were actually
(02:53):
trying to escape
from, still lingers.
Worse, now that there
might be a new problem.
Financial anxiety, guilt, or even the
realization that you purchased something
that didn't actually
change anything.
There is a
term for this.
Hedonic adaptation.
The idea that external pleasures,
(03:15):
no matter how thrilling at first,
quickly lose
their impact.
The new car, the designer bag,
the latest gadget, it
all becomes ordinary.
And so we seek another hit, another
purchase, another illusion of control.
But what if, instead of trying to buy
control, we learn to cultivate it within?
(03:39):
What if, when we felt the impulse to
spend, we paused and asked ourselves,
what am I actually
trying to fix?
This is about reclaiming
true agency over your life.
Not just about choosing how you spend your
money, but choosing how you respond to
(03:59):
discomfort in
the first place.
Because real control, the kind that
lasts, doesn't come from what you buy.
It comes from how you think, how you act,
and how you navigate, the
things money can't fix.
Section 2.
The price
of identity.
How we spend to
prove who we are.
(04:19):
Who are you?
It sounds like a deep philosophical
question, but on a practical level.
We answer it every
day with our wallets.
We buy things not just for their
utility, but what they say about us.
The clothes we wear, the car we drive,
the coffee we order, the tech we use,
(04:43):
it's all signaling.
A way of reinforcing an image, a
narrative, a story about who we are,
or who we
want to be.
Take fashion,
for example.
Someone who buys luxury, brands
isn't just paying for quality.
They're paying for status, recognition,
(05:05):
for the feeling of being someone who can
afford these
things.
The minimalist, who only wears neutral
toned colors, that's a statement too.
One of restraint, of thoughtfulness,
of rejection, of consumer excess.
It's not just
about what we wear.
The adventurer spends money on travel,
(05:28):
and gear, because that's who they see
themselves as.
The entrepreneur invests in the latest
productivity tools, because success is
part of their
identity.
The intellectual buys rare books, the
foodie seeks out high-end restaurants,
the fitness enthusiast prioritize
(05:48):
premium gin memberships.
There's nothing inherently
wrong with any of these choices.
The problem arises when we start buying
things, not to enhance who we truly are,
but to prove
it to others.
Because here's the thing, no purchase
can make you something you're not.
(06:09):
You don't become an athlete, just because
you bought an expensive
pair of running shoes.
You don't become a successful
entrepreneur, because
you have the latest tech.
You don't become sophisticated,
because you wear designer clothes.
Your identity is built through
action, and not through consumption.
(06:29):
Seneca warned against the illusion,
that wealth and status define us.
Saying that, the truly rich man is one who
needs little, not the one who owns much.
Your identity isn't
something you can buy.
It's something you build, not with things,
(06:50):
but with choices, values, and the way you
live when no one
else is watching.
Section 3.
The Endowment Effect There's a
strange quirk in human psychology.
Once we own something, we assign it
more value than it objectively deserves.
This is the endowment effect, And it's the
(07:12):
reason you hesitate, before getting rid of
that old jacket
you never wore.
Why you refuse to sell that barely used
exercise bike, for less than you paid for.
And why companies know, that if they
can get you to take something home,
even on a trial basis, you're
far more likely to keep it.
(07:33):
Ownership changes
perception.
When something belongs to us, we stop
seeing it as just another
object in the world.
It becomes
our object.
And because of that, we
unconsciously inflate its worth.
This isn't just
about money.
It's about identity.
Everything we own carries a story, a
(07:54):
meaning, a reason it
comes into our lives.
Maybe you bought those shoes, because you
imagined yourself, going
to more elegant events.
Maybe that piece of exercise equipment,
represents the healthier version,
of you, that you
want to become.
Maybe that book, sitting unread on your
(08:15):
shelf, makes you feel, the kind of person,
who will one day,
finally read it.
The things we hold on to aren't
always a reflection of who we are.
Sometimes, they're a reflection
of who we thought we'd be.
That's why letting go
feels so uncomfortable.
It forces us to confront the gap
(08:37):
between our expectations and reality.
We resist admitting that maybe we never
really needed that thing
in the first place.
So, how do we break
free from this trap?
A simple thought
experiment.
The next time you find yourself struggling
to let something go, whether it's a piece
of clothing, a gadget, or even a financial
(08:59):
investment, ask yourself
one simple question.
If I didn't already own
this, would I buy it today?
If the answer is no,
why are you keeping it?
The ability to let go
is a form of freedom.
When you detach your sense of self from
what you own, you begin to see your
(09:19):
belongings as what they
truly are, just things.
Decluttering isn't just
about tidying up your space.
It's about decluttering your mind,
freeing yourself from the past
expectations, and making room for
what truly adds value to your life.
Because in the end, the things
(09:39):
you own shouldn't own you.
Section 4.
The Hidden Cost of Convenience Why We
Pay More to Do Less There's a reason
convenience is one of the most
powerful forces in modern spending.
It's not just about ease,
it's about effort avoidance.
We are wired to
conserve energy.
(10:01):
Our brains evolved to
prioritize efficiency.
In the past, this
instinct kept us alive.
Today, it's what makes us willing to
pay extra for same-day shipping, food
delivery, and pre-cut
vegetables at the grocery store.
It's why we subscribe to services that
automate things we could do ourselves.
(10:23):
It's why we grab a coffee on the way
to work instead of making it at home.
We rarely stop to calculate
what this actually costs us.
A $5 coffee doesn't
feel like much.
Neither does paying for an
extra Uber instead of walking.
or subscribing to another streaming
service because it's only $10 a month.
(10:46):
But multiply that over a year, a
decade, and a lifetime, this is how
small, harmless spending decisions
turn into financial quicksand.
Not because any single purchase is
inherently bad, but because collectively,
they create a pattern, one that
quietly drains your wallet.
(11:07):
Paying for convenience
isn't always a bad thing.
Sometimes, time is more
valuable than money.
If an expense genuinely improves
your life, saves you hours of effort,
or allows you to focus more on meaningful
work, it can be a smart choice.
The problem is when we pay
(11:29):
for convenience mindlessly.
When we stop questioning whether
the trade-off is actually worth it,
spending isn't just about
money, it's about intention.
Choose convenience wisely, because
every choice comes with a hidden price.
Section 5.
The Anchoring Effect Imagine walking into
(11:52):
a store, seeing a jacket priced at $200.
But wait, it's
on sale for $80.
That's a $120
discount.
A steal, right?
But ask yourself, was that
jacket ever really worth $200?
Or was that number just
a psychological trick?
An anchor planted to make
$80 feel like a bargain.
(12:14):
That's the
anchoring effect.
We like to think that we make rational
financial decisions, but in reality,
our brains are laced into
the first number we see.
But in reality, our brains latch onto
the first number we see and use it as a
reference point.
Whether that number is meaningful or not,
(12:36):
retailers know this bias well and they
exploit it
relentlessly.
And it's not
just shopping.
Anchoring influences big
financial decisions too.
The cost of falling
for anchoring.
The problem with anchoring
isn't just that we overpay.
It's that we lose sight
of what we actually need.
Because a deal isn't a deal if it
(12:57):
convinces you to spend money you didn't
need to spend in
the first place.
Section 6.
The fear of regret.
We've all
been there.
You see a limited time deal, a product
that's almost sold out, or a big sale with
a countdown timer
ticking away.
Your heart
speeds up.
You feel the
(13:17):
urge to act now.
Because if you don't,
you might miss out.
This is the fear
of regret inaction.
Psychologists call
it regret avoidance.
And it's a major driver
of impulse spending.
We buy things not just because we need
them, but because we fear that if we don't
(13:38):
buy them, we'll
regret it later.
The regret paradox.
Ironically, this fear of regret often
leads to the very thing
it was trying to avoid.
Actual regret.
Retailers understand this deeply,
which is why they engineer shopping
experiences
around urgency.
(13:58):
And we fall for it because we don't
like to feel like we've missed out.
How to outsmart
regret-driven spending?
The antidote to impulse
buying isn't willpower.
It's pause and
perspective.
The 24-hour rule.
If you feel the urge to make a large
purchase immediately, wait a full day.
(14:21):
If you still want it after 24 hours, it's
more likely to be a deliberate choice
rather than an
emotional reaction.
The future you test.
Ask yourself, a week from now,
will I still feel happy
about this purchase?
If the answer is
uncertain, don't buy it.
(14:41):
Reframe the fear.
Instead
which regret is worse, missing a deal or
wasting money on something unnecessary.
Wealth isn't about
grabbing every opportunity.
It's about knowing which opportunities
(15:03):
are the ones that are actually worth it.
So there
you have it.
Some of the psychological
forces that shape how we spend.
From the desire for control to the role of
identity, from convenience spending to the
fear of regret.
Our financial decisions are rarely
just about dollars and cents.
(15:26):
They're about our emotions, our habits,
and the hidden biases that influences us
without ever
realizing it.
The moment you start to recognize
these patterns, you regain control.
You stop reacting and start
making intentional choices.
You shift from spending mindlessly
(15:47):
to spending with purpose.
Because money
doesn't define you.
It doesn't
control you.
But if you don't understand how it works,
both in the world and in your mind,
it'll always feel like it's
slipping through your fingers.
Thank you for tuning
in to The Wealth Fact.
I hope these insights help you
build a better financial future.
(16:07):
Until next time.
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