Understanding Overspending
Another reason why people might overspend is that they lack self-discipline or rely on impulsive actions. Those who have spent impulsively at least once in the past are more likely to do so again, thus leading to a cycle of compulsive purchasing. Impulsive purchasing refers to the act of making a purchase without any forethought or plan; essentially, it’s making a purchase on a whim. In today’s era, where it is easier than ever to make purchases remotely and have goods delivered within a short amount of time, it is even more crucial for people to be aware that they do not succumb to this dangerous habit. Research has shown that this has been an increasingly prevalent issue with the ease of accessibility to websites and apps that allow for impromptu buying.
In many cases, people overspend simply because something triggers them emotionally and they feel compelled to buy something in response. For example, if a person has been feeling particularly down lately, shopping might serve as a quick pick-me-up by releasing endorphins in the brain. It is important to note that emotional triggers are unique and vary from person to person. Someone might feel a desire to shop when they are angry, while another might feel triggered by satisfaction or a desire to bond with others. One of the more common emotional triggers is stress. With the fast pace of modern life, it’s no surprise that stress is a common emotion experienced by many people, and many deal with it through spending as a coping mechanism.
Understanding Overspending Overspending refers to the habit of spending more money than what can be accounted for by income or allocated in a budget. While occasional overspending is very common, it can develop into a serious problem with far-reaching repercussions. There are many reasons why people might overspend, such as emotional triggers, lack of self-control, or even outward social pressure.
Identifying the Causes
Once we have defined overspending, it is important to understand what causes it. There are plenty of reasons why someone may spend more than they can afford; for example, advertising and marketing campaigns can influence people to spend money. If we are constantly exposed to images of what a perfect life is – usually including a range of products that we are told will make us happy – then it is not surprising that we begin to want these things. Similarly, there is often pressure from society and our peers to keep up with the latest trends and fashions. If everyone around us is buying new clothes, gadgets or holidays, it can be hard to resist the temptation to join in. On the other hand, people facing major life changes such as retirement, a new baby, a job loss or the break-up of a relationship can all trigger overspending. This is because change and uncertainty create stress, which can lead to coping strategies such as seeking comfort in material possessions. Lastly, people who struggle to manage their emotions and avoid negative feelings like stress, anxiety or depression may turn to the temporary boost provided by a shopping spree. This is known as “emotional spending” and can create a cycle of increased spending and decreased wellbeing. All in all, there is no single cause of overspending; rather, it is a deeply complex issue stemming from an interplay of numerous psychological, social and personal factors. By recognising and reflecting on what may be driving our spending habits, we can take the first step towards addressing it and making changes for the better.
Recognizing the Signs
Overspending is not merely a matter of going over one’s allocated budget from time to time, but a compulsive behaviour that eventually leads to a loss of financial freedom and security. Yet, it can be difficult to recognise the emergence of this issue as chronic overspenders, unlike those suffering from an addiction or similar condition, are able to continue with their maladaptive behaviour for long periods of time. By recognising and acknowledging the various warning signs early, it is possible for one to take pre-emptive action in order to avoid or overcome overspending. A common sign of something being amiss is when an individual is unable to stick to a budget as a result of constantly overspending as they are unable to control their impulses. Another key sign is when an individual starts using credit cards or taking out unauthorised loans in order to make purchases that they would not be able to afford otherwise. This is often a clear indication of someone who is overspending or is about to start overspending because they are simply ‘maxing out’ whatever funds are at their disposal and doing whatever necessary in order to continue making purchases. When someone begins to hide their purchases or money problems from loved ones, this can often be a clear sign of overspending. This can be particularly difficult to accept or conclusively identify, as the mentality surrounding overspending often means that the individual tries to convince themselves that there isn’t a problem. It often takes the realisation of others that someone may be overspending for that person to accept it themselves or to recognise it in the first place. So, recognising the signs is the first key stage in addressing overspending, and taking action to combat it. All of the different signs – whether it be being unable to stick to a budget, borrowing money to avoid money problems, hiding purchases from loved ones or battling to fight urges to spend on non-essential items – can lead to accumulating debts that would take years to pay back. By overcoming the barriers to seeking help, whether it be stubborn pride, fear of judgment, or the belief that others will not understand the problem, and by acknowledging the warning signs of overspending, it is possible to regain control over one’s finances and life.
Assessing the Impact on Finances
This article provides some really useful tips on how to manage your money and keep your spending under control, so you do not have to face the problems mentioned above. The main website of the National Health Service – NHS Inform – also has a section about managing money and a healthy lifestyle. Well worth a read! In the next section, we will consider some of the positive steps you can take to start improving the situation.
The financial impact of overspending can be really serious. Debts can quickly spiral and, once you start having to pay interest on credit card balances, store cards, overdrafts, loans and so on, the total amount you owe can rapidly become completely unmanageable. This can lead to serious debt problems that may take years to sort out. Serious overspending can also damage your credit rating, making it harder to obtain a loan, a mortgage or credit cards in the future. If you miss credit payments, you may be taken to court and, if the court orders are not met, it is also possible to be made bankrupt. Bankruptcy is a way of dealing with debts you cannot pay. There are severe restrictions on what you can do if you are made bankrupt. For example, you cannot borrow more than a certain amount without telling the lender that you are bankrupt; if you own your own home, you may have to sell it; if you have a lot of valuable items, they may have to be sold; if you have a business, it may have to be sold or closed down and some professional organizations may not allow you to continue as a member if you have been made bankrupt. Also, you may find it difficult to obtain credit in the future. On top of the practical reasons for not overspending, it can be a cause of great anxiety. Dealing with money worries and the stress that comes from having money problems can put pressure on relationships with family or your partner. It can also have a big impact on your health. Research has shown that people who have high levels of debt are more likely to suffer from stress; they are also at greater risk of getting a mental health disorder such as depression.
Creating a Budget
In this section, one needs to figure out how to account for every cent they expect to earn. It’s a chance for them to understand how they can improve their financial goals by coming up with new strategies on how to increase the income. I mean, by critically analyzing the inflows, you won’t miss finding a chance for personal financial growth and this may lead to a more fruitful plan. After identifying the total income to expect, the next step is determining the monthly and yearly expenses. This is based on the fact that there are expenses that occur once in a year like insurance. Such expenses should be noted and divided by 12 so as to know the monthly contribution to set aside for its accumulation. Most importantly, it’s vital to remember including the personal financial objectives and goals when listing the expenses. For instance, if the aim is to set up an emergency kitty, ensure there is an item labeled as saving in the budget.
After understanding how overspending has an impact on the overall financial condition, the second step is establishing a way of controlling the habit. One of the most effective ways of overcoming the habit is creating a budget. The budget should be realistic and it should reflect the monthly as well as the yearly financial goals. Most importantly, the budget should guide the spending habits and it should be adhered to all the time. However, creating a budget is a challenging task to many as it requires keenness and a lot of adjustments to avoid unrealistic changes which may affect the plan. The process of creating a budget starts by noting down the total income. There are people who have a fixed salary and this makes it easy to calculate the total monthly income. On the other hand, it’s important to come up with a rough idea on the extra money that can be made from the variable income.
Tracking Income and Expenses
The most important aspect of any budget is tracking income and expenses. This is how you know where your money is coming from and where it is going. If you currently don’t track your expenses and have no idea how much you spend each month, that’s okay. Now is the perfect time to start. To begin, examine all of your income. For some people, this is simple and may only include one or two sources. If you have a job where you receive a regular paycheck, you can use this amount and average it over the entire year. If you are paid once a month, a simple monthly average will suffice. However, understanding what you bring in each month is important. For many people, income may vary depending on work—as in the case of hourly employees or those that receive bonuses. If this is the case, a simple average will not work. Instead, set up your budget with the lowest possible amount. This way, if there is a month where work comes up short, a surprise bill appears, or another issue prevents that extra income, your budget still works. Then, examine every source of income and write the monthly average of that income down. Total all these amounts. This is a great way to double check your budgeting skills. If the total comes out differently than you expected, there may be a mistake somewhere in the budget. Now, track all expenses. Every single item should be written down. This will be difficult for the first month that you do this, but it is worth it in the long run. For monthly bills that are always the same, such as car payments or rent, write the same amount down each month. For bills that change every month, such as the power bill, write down the monthly average. Try to make your list as complete as possible, but don’t worry if you miss something the first month. You can simply add it on the next month. Now, total all of this. This will give you a much clearer idea of where your money goes each month. It can be quite revealing to see, perhaps for the first time, just how much money goes to fast food, unnecessary items at the grocery store, and all those other places money seems to vanish to. By simply writing down each penny spent, it is possible to make your budget than money needs to every month.
Setting Realistic Financial Goals
After a budget has been created, it is essential to set realistic financial goals. These goals should be achievable and align with your individual values and future aspirations. There are short-term goals, which can be achieved within a year, intermediate goals, which require one to five years to achieve, and long-term goals, which take more than five years to achieve. A good way to set financial goals is to prioritize them. Start with the most important goal, and then set a timeframe in which to achieve the goal. This will illustrate the level of urgency and commitment that is required to achieve the goal. Realistic goals are clear and focused. Make a detailed plan that includes the timeframe, amount, and the expected monthly contribution. Every goal should have a specific and measurable outcome. For example, a common goal is to save money, but that is not a clear and specific goal. A goal would be, “I want to have $10,000 saved in five years so that I can make a down payment on a house.” These types of goals produce positive behaviors because each activity is oriented toward achieving that goal. Also, monitor the goals and track the progress. Circumstances change and someone is likely to experience an unexpected event that results in changing a goal. By tracking the progress, one will be motivated to reach the goal and reduce the temptation to spend the money on things. As time goes on and the goal gets closer, many people will start to make the goal more and more challenging, which is absolutely allowed. For example, it is perfectly reasonable to start a goal of saving $20 a month, but as time goes on, perhaps the goal can be raised to save $40 a month. By documenting the progress, it is satisfying and exciting to see the journey that has been made towards achieving the goal. Every small success will provide the confidence and motivation which is necessary to keep on the track towards achieving the bigger goals. Successful accomplishment of financial goals not only fulfills the physical requirements but also provides a sense of psychological well-being. By achieving the set goals, people experience a feeling of success from being able to make it materialize. This is a testament to the hard work and dedication given to managing and making the money grow. As the success grows financially, confidence and self-worth also increase. Also, by focusing on the goals, it helps guide financial decisions and behavior change. This will let you customize your life to what you really want to do. In a way, it’s a type of financial freedom.
Allocating Funds for Essential Needs
With the funds for essential needs allocated in the budget, it is easier to keep track of how money is spent and also to differentiate between needs and wants when incidental purchases come to mind. By adjusting the amounts for each area of expense in the budget, everyone can make the best use of the money to meet both essential needs and financial goals.
Most people tend to ignore the importance of setting aside dollars for inevitable emergency expenses, such as an unexpected car repair or medical bills. A general guideline is to save 5-10% of the household income for an emergency fund, gradually building it up to an amount sufficient to cover three to six months of living expenses.
Other vital areas of expense such as food, clothing, and transportation should then be tackled. For grocery shopping, planning meals ahead of time and using a shopping list can save money, eliminating both food waste and impulse purchases. It is suggested to allocate funds idealistically in a way that food takes up 10% in the budget, clothing 2-7% depending on the age and occupation of the adults, and transportation 15-20%.
Housing is usually the largest single expense for a lot of people. It is generally recommended to allocate no more than 30% of your annual income to housing expenses. Housing expenses include rent or mortgage payments, property taxes, property insurance, repairs, and utilities. In order to reach the recommended 30% allocation, some people may have to make sacrifices such as finding a smaller place, roommates to share living expenses, or a place in lower cost of living area. When purchasing a house on mortgage, calculations of closing cost and interest payment involved in the loan are necessary.
Finally, when creating a budget, it is critically important to prioritize the allocation of funds to accommodate essential needs. Essential needs refer to the things that are crucial for survival and a decent quality of life, such as housing, food, clothing, transportation, insurance, and healthcare. Before anything else, you should allocate the funds to these essential categories first.
Prioritizing Savings and Debt Repayment
Once your essential needs are satisfied after creating a budget, not only do you need to think about your short-term savings for an emergency fund, but also your long-term savings like for your retirement. Make sure to prioritize your monthly goals, and also your debt repayment and your savings across a whole year. The article “Strategies to Support your Financial Goals” from the Balance provides examples for different types of financial goals. For example, the article recommends to set a specific amount of debt to pay off every month with the “build toward a larger goal” strategy. On the other hand, the article suggests a “robo-saving” app called Rize which allows you to set different goals and will automatically calculate how much you need to save and distribute your fund for you. What’s more, it’s free for using Rize. As stated in the article, experts say if you have the technology to help with steady savings, there’s really no downside to trying it. However, it is important to keep an eye on your spending and your savings every now and then, as technology might make mistakes sometimes. Also, keeping in mind that your current wages, expected future income increase and giving yourself time to spend your money might help you to identify which goals you would satisfy first and which suitable strategy you can use.
Developing Healthy Spending Habits
In today’s on-the-go society, it has become a norm for people to seek instant gratification in all aspects of their lives, including spending. With the evolution of the internet and highly efficient shipping services, people nowadays are used to getting what they want when they want it. Unfortunately, this can be a significant roadblock on your journey to overcome overspending. The goal is not to deny yourself what you want, but rather to choose when to buy, which can help you make more deliberate and well-thought-out purchasing decisions. To master this skill, it’s recommended that you start with small tangible goals and work your way up to larger, more long-term objectives. For example, if your goal is to buy a new watch once you’ve overcome a spending problem, you could initially impose rules such as waiting at least a day before you make a purchase and eventually extend the waiting period to a week before you make a choice. By doing this, not only will you retrain your brain to look for the joy in anticipating a reward, but you’ll also give yourself a chance to weigh out the pros and cons of a product. Of course, just like forming any new habit, it’s important to recognize that practicing delayed gratification doesn’t come easy and it takes time to see significant changes. And like with any slips or setbacks, the key is to be patient, stay positive and learn from mistakes. Remember that the goal is progress, not perfection! And it’s also okay to reward yourself once in a while for sticking to your plan. By building up this new habit of will power and practicing self-control, you may just find that the true product joy you have been seeking all along doesn’t come from owning material things, but from knowing that you are taking strides to overcome overspending and taking back control of your life and finances. So the next time you see something that catches your eye, challenge yourself to stop and embrace the experience of delayed gratification. Through your persistence and commitment, you’re well on your way to more fulfilling and intentional spending choices. Be inspired and inspire!
3.1. Practicing Delayed Gratification
Practicing delayed gratification involves resisting the impulse to spend money so you can meet your financial goals. It requires willpower and the ability to imagine yourself obtaining what you desire in the future. Research has shown that the ability to delay immediate gratification is a key factor in accomplishing long-term success. In a well-known Stanford University experiment conducted in the late 1960s and early 1970s, a group of children were offered a choice between an immediate reward (one marshmallow) or a larger reward (two marshmallows) if they waited for a short period. The children who were able to wait longer for the preferred reward ended up having higher academic achievements, lower body mass indexes, and better coping strategies. “The emphasis on delayed gratification is really about choosing what to value in life,” says Stacey Tantleff-Dunn, an associate professor of psychology in the College of Arts and Sciences and director of the Disordered Eating and Obesity Laboratory. “When we choose immediate gratification, we prioritize feeling satiated in the moment.” She adds that research has shown that when we focus on finding value in our actions — as opposed to value in feeling good now — we can better motivate ourselves to practice delayed gratification. One way to work on fostering delayed gratification is finding experiences and strategies to help you take the focus off of what you’re giving up.
Differentiating Wants from Needs
In order to stop overspending, it is important to learn the difference between what you really need and what you would like to have. Understanding the difference between the two will help you to avoid making purchases based on impulse or emotion, which are often regretted later. Needs are best described as things that are absolutely necessary in order to survive. These are things like food, water, and shelter. On the other hand, wants are things that you would like to have but will still be able to live without. Making the distinction between wants and needs can start in the store. Try to avoid buying something just because it is on sale and take a moment to consider how much use the item is really going to get. One good idea when considering larger purchases, such as a new TV or a luxury holiday, is to list the reasons why you think you need it. If the reasons all point to things like it being on sale or that you deserve a treat, then it is likely that the purchase is based on a want rather than a need. Give yourself a set amount of time, such as 24 hours, before making the decision to buy something. During this time, think carefully about whether the purchase is driven by emotion or whether the item is truly necessary. To help track your spending, write down all of your purchases each day for a week. If most of them are wants rather than needs, it may be time to rethink your spending habits. This can also help you to identify any stress or emotion-driven spending, which can be addressed using other techniques outlined in the article. By learning to recognize what is a need and what is a want, it is possible to start making changes to spending habits and regaining control over finances. There are many things in our lives that we can live without, and learning to let go of unnecessary wants can reduce stress and bring a sense of freedom.
Avoiding Impulse Purchases
And finally, we could consider what money we consider taking out only a certain amount of cash. By putting money on a prepaid check that is not linked to our bank account can help. We cannot spend more than the amount we have put on that card. This will help us to budget and also stop impulse purchases that require payment by card.
Also, try to be late for a date or a meeting. In other words, give ourselves a limit on how long we will spend in the shops. We could even arrange to meet someone afterwards that we know will not appreciate our being late. This means that we are forced to manage our time and so reduce the amount of time that we spend shopping.
Furthermore, we should avoid shopping just because we’re hungry, or tired, or stressed, or upset. Research has shown that these feelings often lead to people making impulse purchases. If we do not feel that we really need an item, then we should leave it for a day or so. Chances are, we’ll forget all about it, and then we’ll realize that we’re glad we did not buy it after all. This is known as ‘cooling off’ a purchase.
The number one rule is never to go shopping without a list. Whether it’s food or clothing, a list can help us stick to a particular search. It stops us from browsing and therefore from buying things we do not need. We should train ourselves to only go shopping when we have a list and also to try and stick to the list as much as possible.
When it comes to shopping, many of us look for things we do not need. Sometimes the problem is due to price reductions in our favorite shops. Sometimes it’s because we’re spending money to enhance our mood. It’s not unusual for people to make impulse purchases, and this could all lead to overspending. Here are some steps we can take to help us stop buying on impulse.
Utilizing Shopping Strategies
While it is always helpful to be able to identify unhelpful habits and know ways to counter them, there are some strategies that you can use when doing your shopping which can help to reduce the severity of the issue. I understand that it can be difficult to remember all of these things when going shopping, but even a few changes to your routine can help to make a difference. Firstly, spend time going through your shelves, cupboards and storage areas and note down everything that you want to keep. This way, when you are out shopping, you can be sure that you do not double up unnecessarily on things that you already have. Next, have a look and see what you are running low on and note down anything that you are completely out of. When you are finished, group your list by what you are likely to find in each section of the store. This will prevent you from wandering about aimlessly and seeing things that you do not need. Something that you will often hear people and advertising say is that money off now is a great way to save money. However, if it is money off something that you do not need and will not use then you are not saving at all. Keep a list in your wallet or purse of what your basic unit prices are for essential food items so that when you see a special offer such as three for two, if you are not sure whether the deal really does provide good value, you can quickly do the math. Don’t be afraid to look at own brand products. Every supermarket will have a value or basic range and these cannot be sold at a loss. Because these products are cheaper, the supermarkets rely on the fact that you will leave with something else that is more expensive and will help to balance out the lost profit on the basic items. If you are worried about the quality, try a couple of items that you would not normally go for and see whether they taste any different to what you usually buy. This way, if you do not like it, you have wasted less money than if you had bought lots. Lastly, stay completely away from offers such as buy one, get one free, or buy now and get money off your next purchase. These offers are typically designed to get you to spend more in the first place and so generally do not save you any money at all. Research has shown that offers like this can actually increase your chances of impulsively buying things that you do not need. By being aware of these tactics used by the sellers, you can begin to spot when you are being manipulated into buying something on a whim and this will help enormously in stopping overspending.
Seeking Support and Accountability
An additional significant step for controlling your spending is to seek support and accountability. This could be in the form of consulting a financial advisor, joining supportive communities, or enlisting the help of friends and family members. When searching for a financial advisor, ensure that the advisor is qualified with the appropriate licenses and does not have a history of misconduct. It is important to meet with the advisor in person and ask about the advisor’s approach to financial planning and how the advisor’s clients are charged. Stopoverspending advises that before you meet with an advisor, take some time to think about what you want to achieve from the relationship. You may prioritize low ownership emotion but effective communication. You could also consider payment types of the advisor accepts and if that suits you. Moreover, do not be afraid to contact the regulatory or consumer organization to ensure that you can get protection if something goes wrong in the future. The next step for seeking help for your spending is to join supportive communities. This will help you realize that you are not alone and many others are struggling with the same difficulties. With the rapid development of the internet, you can easily find communities that fit your lifestyle and your interests. For example, if you spend most of your money in stock, you could join an investment improvement community. If you are facing challenges in managing your money, you could join one of the general personal finance communities to post questions and share knowledge. Do not forget that these communities could be in the form of virtual communication, for example, email list or online forum, or in-person group. Last but not least, your supportive networks including your friends, family and your spouses could be the easiest initial choice for getting help. It can be very beneficial when you are sharing your issue with someone who is willing to understand your situation and are affected by the subject matter. Your supporting members could provide the affirmation and the encouragement that you need to follow through with the particular advice. However, it may be quite difficult for yourself to take criticism especially when the subjects are involved in relationships and emotions are charged. If this is your case, it may be useful for you to engage a qualified and an independent person to provide assistance. By having the entire family getting involved, not only would this lead to a balance and better understanding of the family’s financial position, but also every individual member could learn from the different perspective and it’s a great chance for the family to grow together. And it is always true to say that it takes time for changes to be realized.
Engaging with a Financial Advisor
The article suggests that engaging with a financial advisor can be highly beneficial. First and foremost, a financial advisor can provide professional expertise in identifying the root causes of overspending, developing a personalized financial plan, and offering guidance and advice. For example, a financial advisor can help to conduct a comprehensive assessment of your financial situation and identify any areas of improvement. By looking at factors such as income, expenses, savings, and financial goals, a financial advisor can help to pinpoint the specific underlying issues and chart out a clear path towards better financial management. Moreover, a financial advisor can assist in creating a sustainable budget and offer strategies to minimize and manage overspending. This includes setting realistic expectations of expenditures and teaching skills on tracking and managing day-to-day spending through methods such as digital expense tracking, setting up automated alerts on expenses and withdrawals, and using expense tracking apps. A financial advisor can also provide valuable knowledge and advice on effective money management and healthy spending habits. This is especially useful for individuals who lack confidence and awareness in making financial decisions, as well as those who struggle with financial discipline and control. By learning from a financial advisor about topics such as the importance of saving and strategies to grow and save money, individuals will gradually develop the confidence and ability to make better financial choices on their own. Most importantly, a financial advisor can offer professional accountability to ensure that individuals stay committed to their financial goals and plans. This is particularly useful for people who may find it difficult to stay motivated or focused independently. By providing regular meetings, check-ins and progress reviews, a financial advisor helps to keep track of one’s financial discipline and achievements, and offers support and validation when faced with setbacks or obstacles. Through this professional relationship, individuals can cultivate a sense of responsibility and commitment towards their own well-being and future.
Enlisting the Help of Friends and Family
Another effective way of holding yourself accountable and staying on track is to involve your friends and family in your efforts to recover from overspending. Take the time to sit down with the people who matter most to you and who are affected by your spending and have an open and honest discussion about the state of your finances. Share your budget plans with them and update them on your progress regularly. This can take many forms, from simply having casual conversations with your loved ones about the financial changes you are making in your life, to more formal arrangements such as asking a family member to have joint control over savings accounts or seeking their permission before making any substantial purchases. By doing so, you are constantly reminded by the support network you’ve established whenever you are about to make a decision with financial implications and you receive guidance and encouragement along the way. However, the extent to which you involve your friends and family in your financial recovery is up to you. People have different views about money and different levels of trust and intimacy in their relationships. Some may welcome the opportunity to be able to help you and strengthen the bond in your relationships, while others may find such involvement intrusive and stressful. It is important to set clear boundaries for what you are comfortable with and remember the final decision is yours to make. In no circumstances should you feel pressured to involve others in your recovery or be coerced into doing so. Be honest with yourself and with your loved ones, and discuss and agree on the best way to offer and maintain mutual support for each other. By working together and understanding each other’s needs, the process can be an enriching experience that brings you closer to the people you love and generates positive effects in other aspects of your life.