A 2019 study showed that the average American consumer overspends roughly $143 to $340 weekly and around $7,400 yearly. Many individuals may even miss the signs of overspending, which can include maxed out credit cards, difficulty paying bills, or running out of money at the end of the month. Although difficult, you can rein in the habit of overspending by implementing a budget, tracking spending, and setting rules.
Signs of Overspending
Overspending can begin to pose a problem when it puts you in financial hardships you otherwise wouldn’t face. It can lead you into debt and, as a result, damage your credit score. Here are some signs that you may be overspending.
You Don’t Know Where Your Money Is Going
Do you wonder where all your money goes by the end of the month? Overspending might be the culprit to your disappearing income. Consider tracking your monthly spending to help monitor where and how much you are spending.
You Don’t Stick to Your Budget
If you have a budget but have a hard time following it, you may have spending issues. This can hurt your finances and lead you to fall behind in paying necessary expenses. It may also stop you from contributing to your retirement or savings accounts.
You Struggle to Pay Your Bills
If you are stressed out and struggling to make ends meet, you may be overspending. To avoid feeling helpless about your finances, consider tracking your bad spending pattern and creating a budget.
Your Credit Cards Are Maxed
Maxed-out credit cards and zero available balance may mean that you compulsively overspend. Relying on credit cards to cover your necessities can unduly increase your debt. Additionally, credit cards accrue interest and additional fees, and it can be difficult to avoid debt if you chronically overspend on cards.
Your Credit Card Debt Exceeds Your Monthly Income
If you spend more than you earn and owe more than your monthly income in credit card debt, this can be a clear sign of overspending. Your monthly income should be higher than what you have in credit card debt to ensure you allocate your finances towards necessities.
You Buy Things Before Paying Your Bills
Do you go on shopping sprees before paying your bills? If that’s the case, you may have an issue with overspending. It is always best to pay your fixed expenses first and then spend the remaining money on items that may not be necessities.
Your Expenses Rise with Your Income
Do you tend to spend more as you make more money? Do you change your lifestyle-based expenses when you get a new job or a raise? If yes, you may be overspending. Instead, you can maintain your current budget and allocate the extra income to paying down debt, savings, or investing.
You Have More Clothes Than Money in Your Bank Account
Possessing unused items may also be a sign of impulse spending. For example, this can include owning clothing with the tags still attached. Instead, consider selling older items to make some income and open closet space for the unworn clothes.
How to Stop Overspending
Admitting that you have an overspending issue and wanting to fix it is the first step to overcoming the problem. There are many concrete measures you can take to improve your financial habits. These steps can help you make wiser financial decisions.
Understand Your Spending Triggers
Overspending may often be caused by emotional triggers, such as stress, sadness, or negative emotions. A study conducted by Donald Black showed that people compulsively overspend as a response to negative emotions. Individuals were found to spend money to feel better about the negative triggers. Ultimately, understanding your spending triggers can help you control them.
For example, consider keeping a diary to log instances that trigger your desire to spend. Also, record your shopping trips, time of the day, your emotional state, motives, and how much you spent. Review these recordings to understand the patterns that may trigger overspending. Once you identify the triggers that can cause you to overspend, you can redirect yourself to more beneficial activities when those triggers arise.
Track Your Spendings
Tracking your spendings will help you understand where and how much of your money is being spent. Start by writing down every purchase you make. There are budgeting and money-tracking apps that can help simplify this process. Then divide your expenses into categories such as groceries, utilities, clothing, and dining out. This way, you know how much of your income is being spent in each category. Tracking your spending can help you identify areas of overspending that need to be addressed.
Create a Budget
Creating a budget goes hand in hand with tracking your expenses. Creating a spending plan will help you better picture how much you make and spend each month.
- Start by adding all your sources of income and then calculate all your fixed expenses (rent, car payment, etc.). Since your income and necessities are already predetermined, it is easier to budget around them.
- Then write down your variable expenses (groceries, entertainment, etc.) and intentionally specify how much money you will spend in each category.
- You must stick to your plan for it to be effective. If an item is on the budget, then you can make the purchase. If it is not, you don’t.
Keep in mind that you can always adjust your budget based on your changing income and goals.
Set Spending Rules
In addition to setting a budget, also consider implementing spending rules. For example, enforce a waiting period for non-necessity purchases. If you are considering buying an expensive item, wait a week before purchasing. This allows you time to think it over and avoid impulsive spending money. Also, this can give you time to find a better deal or encounter a sale.
Set Financial Goals
The purpose of setting a financial goal is to stay motivated as you try to break your overspending habit. It will also serve as a reminder as to why you started cutting back in the first place. Remember not to go crazy or set generic goals such as “spend less money on clothes.” Instead, set specific and quantifiable goals like “spend a maximum of $50 on clothes a month, instead of $200.” Other examples of attainable goals can include saving 20% of your paycheck or building a $1,000 emergency fund.
Reduce Credit Card Spending
If you are thinking about how to stop overspending, consider reducing your credit card spending. Credit cards are very attractive and have many perks, such as earning miles or cashback. But being too dependent on credit cards can lead to more debt. To avoid using credit cards, consider switching to cash. Using cash can help minimize your spending by only allowing you to spend a strict set amount.
If you shop online and have saved your credit card information onto your shopping profile, delete it. This is the most effective way to stop overspending online because it will eliminate the temptation of purchasing with a single click. If you already know your credit card number by heart, consider requesting new cards.
Reduce Monthly Bills
Take a closer look at your recurring bills, such as your housing expenses, and try to reduce them. Rent or mortgage payments usually take up the most significant portion of the monthly bill. If possible, consider finding more affordable housing or refinancing your home. You can also cut down your energy consumption to save a few bucks on your utility bill.
Choose Cheaper Entertainment
Choosing a cheaper entertainment option doesn’t mean you need to stop having fun. There are many fun and cheap hobbies you can take advantage of. For example, you can go out for coffee instead of a pricey dinner.
Shop with a List
Going shopping with a list is an effective way to save money on groceries because it will help you stick to your budget and avoid impulse purchases that lead to overspending. In addition to saving money, carrying a shopping list will also help you save time in the store. A list can also reduce impulse buys, lowering the likelihood of purchasing items that may end up in the trash.
Automate Your Savings
Alongside cutting your expenses, you should also boost your savings to achieve financial freedom. First, create a savings account and save money from every paycheck into that account. Then, you can set up a savings program that automatically transfers a portion of your salary directly into your savings account.
Reforming a bad habit doesn’t happen overnight. Time and commitment are essential to stopping compulsive overspending, so don’t be hard on yourself. Budgeting, tracking your spending, setting goals, and making mindful choices can slowly but surely change your bad spending habits and turn you into a savvy consumer instead.