Here’s the deal: we are all guilty of overspending, but it’s not your fault. Studies have shown that we as humans are simply hardwired to behave irrationally when it comes to managing money.
Everyone has their overspending vice. You may find yourself justifying that new pair of shoes (my personal vice) because you stumbled on a crazy discount online. Or you may be the type to splurge with your tax refund on the nicest restaurant in town.
No matter what triggers you to overspend, there’s no need to beat yourself up about it. Instead, it’s important to recognize the reasons for overspending to prevent yourself from blowing your budget.
Here are 5 of the most common reasons we end up overspending our hard earned money:
The 5 Most Common Reasons for Overspending:
We Want to Keep Up with the Crowd
You may have heard the term, “keeping up with the Joneses.” The well-worn idiom characterizes the classic situation of succumbing to social pressure and overspending on something more expensive than you planned.
Imagine you’re out to dinner with friends and everyone orders the rare expensive glass of wine. Chances are you will follow-suit so you don’t miss out on the experience. It stems from the tribal mentality we all inherited from our human ancestors. Being the one person who voices opposition to a group plan because of the high price is not easy to do. If you do speak up, you may feel like a spotlight is placed on you and everyone else is judging your decision. It may be much easier to go along with everyone else, but unfortunately, it’s a major reason we overspend.
Using Credit Cards Makes it Way Too Easy
Online shopping is way too easy, especially when you can have anything shipped right to your door. Pull out your plastic and you are on your way to buying everything you need. The problem is that overspending with a credit card is too easy. In fact, when you use credit cards for your shopping, online or in-person, you may be spending 5 to 10 percent more than if you were shopping with cash.
The reason? Credit cards give an allure that you can “pay for it later”. You promise yourself you’ll pay off your credit card right away, but it seems that every time you run up a balance, something else comes up that you haven’t pay for. So, it’s convenient to simply pull out your card again and pay for it. The cycle continues until your spending is spiraling out of control and you’re drowning in stress and debt. Trust me — I’ve been there!
We Forget to Budget for Special Occasions
It’s easy to make a purchase and chalk it up to a “special occasion.” The next thing you know, special occasions start popping up left and right: a wedding, birthday, the vacation you desperately need. Suddenly living beyond your means because there’s always something coming up that you didn’t plan.
Even when we attempt to budget for these special occasions, most of us tend to underestimate how much they’ll cost. There’ve been many times when I’ve gone over budget for a special occasion because I forgot to budget for the “extras” that come along with celebrations, like having to tip when you go out to eat or needing to give a gift at both a bridal shower and a bachelorette party.
We Get Bored
Boredom is another common trap that can lead to overspending. You may love meandering through shops on a weekend just to “kill time,” but the problem is that you usually end up spending money you’d hadn’t planned on spending. Even if you only spend a few dollars on a quick bite, it’s not a good idea to tempt yourself when you haven’t budgeted for boredom shopping.
The Ripple Effect of Buying New Stuff
Have you ever thought that you just needed to make one purchase, like a new couch, and then suddenly you’ve spent thousands of dollars remodeling the entire living room?
Once I became a homeowner, I found myself going way overboard whenever I’d try to tackle home improvements. Buying that new couch leads me to want to outfit my whole living room with new furniture and a fresh coat of paint. That is the ripple effect.
5 Ways to Stop Overspending:
Now that you recognize some common spending triggers, here are some tips to stop overspending:
Wait a Few Days
Instead of spending money on the spur of the moment desires, think about your purchases for a day or two. Doing this gives you time to evaluate whether or not you really do need the item before you commit to actually purchasing it. Better yet, write it down and put off the purchase until next month. That way you can add the money needed for your purchase into your monthly budget. Simply giving more time your purchase decisions is one of the best ways to stop overspending.
Don’t Spend Emotionally
People often revert to overspending as a way to relieve stress. Having a bad day isn’t a great reason to justify buying mean you deserve those new earrings. Shop when you are on an emotional high instead of when you are tired, hungry, stressed, etc. Do not shop when you have had a bad day or because you feel like you deserve it. You deserve financial freedom more than you deserve a new pair of shoes.
Using a debit card is a great option to help stop overspending. Debit cards allow to only spend the amount that available in your spending or checking account. If you have $5, you can only spend $5. Keeping track of the immediate impact will help you say “no” to some unnecessary purchases. Luckily there are banks, such as Chime, that are actually designed to help you save money. Chime helps you stay on top of your finances and save with features like daily balance notifications and Automatic Savings.
Budget for the Unexpected
One way to prevent overspending is to create a budget and stick to it. However, this can be easier to do if you give yourself a little breathing room. Try budget an extra $100 per month for unplanned expenses if your finances allow it. Even if you can’t budget an extra $100 per month, just starting somewhere will help you get on the right track. This way if you accidentally under-budget for a special occasion, you’ll have some room in your budget to cover it.
Try Something New
Instead of shopping out of boredom, take up an interesting new hobby of your own. You can join a book club, take up a healthy habit like running or yoga, or even spend some time on activities you use to do but no longer seem to make time for. Hobbies can be great ways to keep life fun and entertaining without you having to always buy the next new thing to keep life exciting.
Use Your Creativity
Instead of giving in to the ripple effect by buying a new table to go with your new couch, maybe you could refinish the old one. Even if you still think a different lamp would look better in the room, you might be able to find one at a thrift store or try replacing your lamp shade. I’ve found thrifty ways to make some of my old stuff feel new again with just some elbow grease and a can of spray paint. Thinking about things differently can be fun and creative, as well as thrifty.
Splurging occasionally is not a bad thing if you plan on it, but knowing why we often overspend and how to stop overspending before it starts will go a long way to help you build healthier financial habits.
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.