How to stop overspending and get your finances back on track
The secret to financial independence is simple: spend less money than you earn. Still, every month, people around the world struggle to make ends meet. Sometimes it’s because they legitimately don’t earn enough money to cover the basic expenses. But often, it’s because they fail to stick to a budget (or never had a budget to begin with).
If you know that you overspend, the first thing to do is examine the roots of your problem. It’s not always easy to recognize your own triggers, but once you know what drives your spending, you can come up with a plan to fight back and start saving.
Here’s everything you need to know about what causes overspending and how to get yourself back on track.
Common causes of overspending
Everyone has their own demons, but some issues pop up again and again. These are some of the most common causes of overspending:
Lack of budget
Creating (and sticking with) a budget is the absolute best way to curb unnecessary spending. Yet, a recent Gallup poll found that only 33% of Americans actually keep track of their household expenses – meaning they might have no idea how much they’re regularly spending on things like food, entertainment, or even the monthly electric bill. Without having a true understanding of your normal household expenditures, it’s too easy to say “yes” to a dinner out, a new pair of shoes, or a daily latte that you can’t really afford.
Easy access to credit
Just open up your mailbox, and on a daily basis, you’ll likely find another offer for a credit card, mortgage, or personal loan. Hop online, and you can open a new line of credit with just a few clicks of your mouse. It can almost seem like free money. Unfortunately, all of those offers often come with high-interest rates or hidden fees and the more you use them, the more debt you rack up.
Misusing credit cards
Most experts recommend paying off your credit cards at the end of every month. And they can be great when they’re used that way – you build credit, earn points and rewards, and reap lots of financial benefits. However, many people let their balance carry over from month to month and the debt can quickly add up. For example, if you make a $1,000 purchase on a card with a 20% interest rate, that’s $200 in interest. Let that balance carry for several months, and all the sudden, you’re paying hundreds of dollars more than the actual product was even worth.
Underestimating little expenses
Whether or not they have a budget, most people can tell you how much their car payment is every month, or what they pay for cable and internet. But ask them how much they spend each month on that daily Starbucks run or lunch out with their buds, and you’ll get a blank stare. Not surprisingly, those little expenditures can add up. Take that daily coffee for example; A Venti Cafe Latte costs $4.15. That same purchase five days a week adds up to almost $85 a month.
Not understanding wants vs. needs
How to curb overspending
Recognizing that you have a problem is the first step in taking control of your money. These are some of the best measures you can take to get your spending under control:
Recognize your spending triggers
In many cases, spending is triggered by an emotional response. If you know how to recognize and remove those triggers, you can control the temptation to spend. Some of the most common include:
- Boredom: Many people find themselves opening up the Amazon app or heading over to the local mall when boredom strikes. If you know that’s your issue, replace it with something healthy, like going for a walk or catching up on reading.
- Environment: Are there certain places that just make you want to spend, whether you have the money or not? Carnivals, craft shows, souvenir shops, and favorite stores are all common triggers.
- Peer pressure: Worried about keeping up with the Joneses? Don’t be afraid to let your friends know that you’re on a budget; perhaps they’ll decide to follow suit!
Switch to cash
Many people find that it’s easier to keep track of their spending when they rely on cash rather than credit cards. Why? If you set a spending budget of, say, $200 a month and take that money out in cash, it’s easy to visually assess when funds are getting low. And knowing that you have a limited amount of funds to use every month, and being able to physically see them, makes you really consider each purchase before making a spending decision.
Create a budget
Taking a hard look at what you make vs. what you spend can be a big wakeup call. If you want to get your budget on track, follow these simple steps:
- Add up monthly income from salary, tips, child support, or any other sources of income
- Make a list of your hard expenses: rent, car payment, insurance, electricity, and so on
- Allocate any leftover money to go towards variable spending, including groceries, gas, entertainment, and savings
- Don’t forget to set aside some money for a treat if you can! You know what they say about all work and no play . . .
As an overspender, creating and sticking to a budget can be hard work (especially when it comes to avoiding emotional triggers). However, simply making a commitment to turning things around is a great first step. By setting goals and taking things a little at a time, you’ll soon be on the road to financial freedom.