While every individual's spending habits are unique to his or her circumstances, a few common issues tend to be responsible for overspending.
Lifestyle creep, for example, occurs when individuals gradually increase their spending over time and often accounts for unrecognized overspending. Individuals that lack a decision-making process for making purchases can also find it difficult to control their spending. Social pressures to enjoy dinners out and vacations with family and friends may be magnified for younger people, who see others enjoying these activities through social media platforms like Instagram. (Remember FOMO?) So how do you get out of this funk and finally quit overspending for good?
First you must admit there’s a problem. If you check off any of these signs, then you are overspending.
Well first things first, CREATE A BUDGET. I can’t emphasize enough the importance of a budget. This is the only way to clearly see what you bring in versus what you are spending. A budget helps create financial stability. By tracking expenses and following a plan, a budget makes it easier to pay bills on time, build an emergency fund, and save for major expenses such as a car or home. Overall, a budget puts a person on stronger financial footing for both the day-to-day and long-term financial goals.
Maxing out your credit card means not only living an unsustainable lifestyle, but you’re also using additional resources to fuel your overspending. Additionally, you’re accruing interest and possibly incurring expensive fees for hitting your max. When your spending is no longer about what you have in your wallet, but more about the thrill of shopping, it’s time to make a change. Leave those credit cards at home, or better yet, cut them up. If you use your credit card regularly without making your payments in full, interest piles up. Switch to cash! By switching to a cash-only plan, you’re forcing yourself to stick to your budget– when your money runs out, you’re done spending.
It can be tempting to pay the minimum amount due on your credit card bill, but it can be expensive in the long run. While it’s important to make at least the minimum payment, it’s not ideal to carry a balance from month to month because you’ll rack up interest charges and risk falling into debt. According to the Credit CARD Act of 2009, card issuers are legally required to include a “minimum payment warning” on each billing statement. Next statement you get, take a hard look at this table. You will be shocked at what you see. Let me give you an example. Let’s say you have a balance of $1,000.00 and your interest rate is 15% with a minimum payment of $25.00. You only make the minimum payment every month and don’t add anymore purchases to the $1,000 balance, it will take you 97 months (or 8.08 years) to pay it off. You will end up paying an extra $636.94 in interest. WOW! That is a long time and a lot of extra money to pay off that new TV. Now let’s say you decide to double that payment to $50.00 per month. It will take you 24 months (or 2 years) and just $157.95 in total interest. Just some food for thought.
The idea of having more debt than income sounds scary, and there’s no denying it’s a stressful place to be. But what do we mean when we say, ‘debt exceeds income’? We mean your monthly repayments of loans, credit cards, mortgages, overdrafts, bills, rent, and store cards add up to more than your monthly take-home income. If you find yourself in this situation, it’s extremely important you act today. The first thing to ask yourself is which of your debts are choices on a month-to-month basis. To be brutally honest, if you consider eating out, designer clothing, holidays, and fun as essentials, then you’re not prepared to give up. It’s going to be harder to get on top of things. Getting out from under this situation is not easy, but it is possible. It may be time for a professional to step in and help.
You got a promotion at work or landed that higher paying job you’ve been working so hard for. Making more money will almost certainly mean more spending, right? Well, it doesn’t have to be. We call that “Lifestyle Creep.” The problem with lifestyle creep is that it can edge out larger financial goals such as creating an emergency savings, contributing to retirement funds, or putting money away for a down payment on a home. Without you realizing it, your newfound lifestyle can take priority over your financial security. Even if you're earning a generous income, you might end up living paycheck to paycheck or incur unaffordable amounts of debt. This kind of spending is scary: If you experience any disruption in income or have an unexpected expense, you will almost certainly have trouble paying your bills. Again, create a monthly budget and stick to it. Set long-term goals, track your progress, and automate your savings and investments. You can reverse an escalating lifestyle by making active choices. Really think about how you might use your money for your own good. Pay attention!
Financially savvy people understand the importance of paying fixed expenses before purchasing fun items such as clothing, electronics, and vacations. Your fixed expenses should always take priority, as well as “paying yourself first.” And what I mean is, contributing to savings and investments, not running to the mall to buy the latest designer pair of shoes or gadget. It’s okay to give yourself little rewards now and again to stay on track. If you love clothes, put a little cash aside or load up a prepaid debit card for a reasonable shopping trip. If you tend to splurge on fine dining, plan one night each month to visit your favorite restaurant. Do you love to travel? Reward your good behavior by surfing around for last-minute deals or taking a day to explore what your city has to offer. You don’t have to give up things you enjoy all together, you just have to prioritize your responsibilities.
Do you have more in your closet than you have in your bank account? Investing more in your closet than your retirement savings or emergency fund represents damaging financial behavior. Reflect on where your money is going. Like going through your closet and taking stock of what you own, you should also figure out where your money is going. Most financial advice out there says to stop buying lattes and new clothes. But that just makes folks feel shame about spending money and that money shouldn’t be enjoyed. You can avoid impulse spending on things that don’t add value to your life and buy things you love without feeling guilty. Create an intentional action plan for your money. Give every dollar a job. Once your paycheck is deposited into your checking account, immediately start “telling” it where to go. If you’re on a cash budget, withdraw the necessary amount, then pay your bills. To avoid the temptation of blowing the rest, move it to other accounts, such as a savings account or a retirement fund.
You work hard for your money and your money should work hard for you. When our homes and closets get cluttered and full, we feel less in control as our space can feel overwhelming. It’s the same with overspending, the more money flies out of our bank accounts, the more it can feel like we can’t stop it.
If you’re reading this and recognizing some of your behaviors, but are feeling defensive or dismissive, you could be resistant to change. No doubt change can be scary, especially if you’ve overspent for a long time, but it’s essential if you want to live a financially healthy life. Learn to be more open and flexible. Ask yourself what it is you’re resisting. It’s a normal reaction to resist, so acknowledging it is necessary. Focus on what you can control and try to let go of what you can’t. Consult a mentor or financial coach. We are creatures of habit who run from change and don’t embrace its reality. A coach offers outside intervention to ensure your accountability and provides the reality check you need. Hanging onto the past and denying change doesn’t stop it. Call, text, or email today for a free consultation. And remember, discipline equals freedom.
