Spending Vs. Saving: It’s More Psychological Than Practical

Have you ever wondered why some people save every rupee while others spend without a second thought? Is it just about how much money someone earns? Not really. The truth is, spending vs. saving is often less about money and more about mindset and emotion.

Understanding the psychology of saving and spending can help you become more strategic with your financial decisions, irrespective of income and budget.

Let’s explore why we behave the way we do with money, and how you can strike a healthy balance between enjoying your life today and saving for tomorrow.

• Table of contents

• The psychology behind financial behaviours
• Understanding the spender vs. saver mentality
• What defines a spender and a saver?
• The role of emotions in spending and saving
• Dopamine and instant gratification in spending
• Genetic predisposition vs. learned behaviour
• Cultural and societal influences on financial habits
• Spending vs. saving: Which one is more suitable?
• Tips to achieve a healthy financial balance
• Budgeting tools and mindful money practices
• Role of SIPs and mutual funds in creating discipline and goals

The psychology behind financial behaviours

More than numbers and bank accounts, money is deeply tied to how we think and feel. Our financial behaviour is often shaped by emotions, past experiences, and even how we were raised. This is where the psychology of financial habits comes in. It helps us understand that managing finances is not just about following a budget – understanding our approach towards money is equally important.

Understanding the spender vs. saver mentality

We all have different approaches to money. Some of us love the thrill of shopping or treating ourselves. Others feel secure only when they save money. This is called the spender vs. saver mentality. It shows how people naturally lean toward spending or saving based on their personality and psychology. The good news is that neither side is right or wrong. The key is balance.

Also Read: Behavioural Finance: Thinking Process Versus Outcome

What defines a spender and a saver?

Let’s take a closer look at the traits of spenders and savers.

Spenders:

• Enjoy shopping and lifestyle experiences.
• May prioritise immediate happiness over long-term goals.
• May avoid tracking expenses.
• Tend to feel excited when buying new things.

Savers:

• Feel satisfied when they see money growing.
• Seek future security more than near-term pleasure.
• Are more likely to budget and plan.
• Sometimes avoid spending, even on important things.

The role of emotions in spending and saving

Emotions play a major part in how we manage money. Think about it:

• Many of us shop when we’re sad to feel better.
• We save more when we’re feeling anxious about the future.
• Spending can be a way to feel rewarded.
• Saving can be a way to feel in control.

Whether it’s joy, fear, or stress, our emotions strongly influence why we spend or save money.

Dopamine and instant gratification in spending

When you buy something new, your brain releases dopamine, a chemical that makes you feel good. This is why shopping can feel exciting or comforting. But this instant gratification of ‘retail therapy’ can lead to overspending, especially when we use spending to escape boredom, sadness, or stress.

Understanding this helps you break this pattern and ask an important question: Am I spending on something that I need or value, or just to feel better right now?

Genetic predisposition vs. learned behaviour

Are people born savers or spenders? It turns out, both genetics and environment play a role.

• Some people may be naturally more cautious or impulsive, which affects money habits.
• But a lot of our behaviour is learned from our community and culture.
• Growing up, if you saw your family budgeting carefully, you may become a saver.
• On the other hand, if you saw money being spent freely, you may feel more comfortable doing the same.
• It may also work in reverse – growing up in frugality can make you an overspender and witnessing careless behaviour towards money can make you overly cautious..

So, while some tendencies may be inborn, most financial habits can be changed with awareness and practice.

Cultural and societal influences on financial habits

In India, our financial choices are also shaped by society and culture.

• Saving is often linked to responsibility and family values.
• Spending may be seen as enjoying the fruits of your labour.
• Festivals, weddings, and social gatherings often encourage spending.
• At the same time, planning for children’s education, health, and retirement pushes us to save.

Balancing these cultural influences is key to creating healthy money habits.

Spending vs. saving: Which one is more suitable?

The simple yet clear answer is that neither one is more suitable on its own. Spending and saving both have their place.

Saving helps you:

• Prepare for emergencies.
• Potentially reach future goals like buying a house or retiring comfortably.
• Work towards financial stability.

Spending helps you:

• Enjoy life and create memories.
• Reward yourself for hard work.
• Support your lifestyle and needs.

The idea is to spend mindfully and save consistently. Too much of either may not be positive.

Tips to achieve a healthy financial balance

You don’t have to give up your love for shopping or become obsessed with saving. You can strike a balance in the following ways:

1. Track your expenses: Know where your money goes. Becoming aware of your expenses is the first step to managing your money.
2. Follow the 50-30-20 rule: Spend 50% on needs, 30% on wants, and save 20%. You can also customize this pattern to your income and lifestyle – but whatever the pattern may be, stick to it.
3. Avoid too much credit: The credit trap can cause you to spend beyond your means, especially if you don’t monitor your dues closely and repay them on time.
4. Wait 24 hours before big purchases: When feasible, try to put some time and distance between the temptation and purchase. This can bring more control and rationality into your decisions.
5. Celebrate small saving wins: Treat saving like a personal achievement.

Balance comes from being mindful and creating small, lasting habits.

Budgeting tools and mindful money practices

Today, technology can make managing money easier. Here are some helpful tools and habits:

• Use budgeting apps to plan and track your expenses.
• Set monthly or yearly savings goals.
• Use an SIP calculator to plan long-term investments.
• Create a “fun” budget so you can spend without guilt.
• Journal your spending triggers to know your patterns.

These tools can help you stay connected to your goals while giving you space to enjoy your money.

Role of SIPs and mutual funds in creating discipline and goals

One way to build discipline and reduce emotional decision-making is through tools like Systematic Investment Plans (SIPs) in mutual funds.

Here’s how they help:

• You invest a fixed amount regularly, regardless of market conditions
• Your investments can be automated, enabling you to stick to a schedule.
• It builds a habit and removes emotion from the process.
• You benefit from the potential for compounded growth over time.

SIPs help turn setting aside money for the future into a routine, rather than a one-time effort. Tools like an SIP calculator can help you plan how much to invest to potentially reach your goals.

Also Read: Understanding Confirmation Bias

Conclusion

When it comes to spending vs. saving, the real challenge is not just managing your money but managing your mind. Our emotions, habits, and background play a big role in how we use money every day. By understanding your natural tendencies and using simple strategies like budgeting, SIPs, and mindful spending, you can find a balance that may work for you.

You don’t have to save every penny or feel guilty for enjoying spending your money. What matters most is being aware, making informed and well-considered choices, and staying consistent with your goals.

FAQs

Why do some people naturally save money while others tend to spend?

It often depends on personality, upbringing, emotional needs, and habits. Some people find comfort in saving, while others enjoy the excitement of spending.

Can a spender become a saver with the right strategies?

Yes. With self-awareness, small changes, and tools like budgeting and SIPs, one can build suitable saving habits over time.

How does emotional spending impact long-term financial goals?

Emotional spending can defer or hurt goals like investing for a house or retirement. Being aware of your triggers helps you control it.

What psychological factors influence saving behaviour?

Fear of the future, desire for security, and childhood experiences often shape how people view saving.

Are financial habits more influenced by genetics or environment?

Both matter. Genetics may influence your nature, but habits are mostly shaped by what you see, learn, and practice over time.