Emotions have been tested, twisted and tweaked this year and Australians' money is often an unwitting victim.

It may be an income crunch caused by COVID-19, or pressures from social media to spend more than you should, or your own brain working against you.

When there is negative pressure on your finances, controlling emotions is a key to getting back on top.

Psychologist and behavioural economist Phil Slade says research spanning decades found a person's success in life is not highly correlated to their IQ, education or parent's socio-economic level.

"The only predictor is the ability to understand and control your emotions," he says.

Making reactive decisions will be costly for your finances and life in general.

"Think of your emotions like an ape," says Slade, the author of new book Going ApeS#!t. It needs to be controlled rather than letting you flip your lid, he says.

Behavioural economist Phil Slade says people should examine the way they talk about money. Picture: AAP
Behavioural economist Phil Slade says people should examine the way they talk about money. Picture: AAP

Slade says separate research of 27 prison inmates found just four minutes and 26 seconds of reactive decision making between them had led to 715 years of incarceration.

He says people should examine the way they talk about money and the way they act financially with their partners and others.

"Sometimes we spend money on something simply because we want to show that we can.

"People don't like the feeling of not being in control, so when they are slightly out of control they will go and buy a car or spend more money online."

Slade says COVID's gambling boom is an example. The latest research from AlphaBeta Advisors and credit bureau Illion shows Australians' spending on online gambling last month was 94 per cent higher than a normal pre-COVID week.

Ladies Finance Club founder Molly Benjamin says people often put their head in the sand around bills and budgeting.

"This is because a missed bill or lack of financial rigour creates anxiety, depletes savings, leads to late fees and can force many into expensive debt," she says.

"Research shows that those who are less accurate at predicting future expenses are indeed more likely to end up with these consequences."

Ladies Finance Club founder Molly Benjamin says people often put their head in the sand.
Ladies Finance Club founder Molly Benjamin says people often put their head in the sand.

Benjamin says people should consider their spending goals when in a "cold state", away from spending temptations and pressures.

"Don't just rely on willpower, but do what you can to plan ahead," she says.

This might include using technology and budgeting tools, separating money into different fee-free accounts to keep track of spending, and trying to think in terms of trade-offs.

"Ask yourself: 'if I spend on this, it will mean I can't spend on that?" Benjamin says.

"This is easier if you have money put aside for bills and important expenses, as it will force you to think twice before accessing those funds."

Slade says many people think they are in more control of their finances than they are, and risk falling into spending traps.

Buy now, pay later schemes such as Afterpay are credit schemes that promote "classic reactive spending", he says.

"You think 'I can't afford it now but maybe I will be able to afford it in a few weeks'."

@keanemoney

MAKE BETTER MONEY DECISIONS

1. Communicate with people, being open and honest, and practice talking about money.

2. Learn how to switch when you feel emotions are controlling your spending. It may be breathing exercises or telling yourself you will buy it tomorrow if you still really want it then.

3. Put savings into a separate account with a password linked to a goal you're saving for, such as "Europe 2022 holiday". Then you will think twice about withdrawing it.

4. Use separate small accounts to pay for household costs rather than one large account. We are more likely to raid one account holding $3000 than 10 smaller accounts of $300.

5. Try disconnecting from social media if unrealistic social comparisons influence you to spend money you don't want to.

Source: Psychologist Phil Slade

Originally published as How your brain makes you spend too much


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