America has an overspending problem, and you likely have an overspending problem. Let those words sink in.
Sure, everyone knows they are overspending a bit here and there, but is it THAT big of a problem?
Let’s look at the data. First, almost half of you don’t have enough money to cover an unexpected $400 bill. Secondly, American families are not saving enough money for retirement.
Before you get too down on yourself, it’s essential to realize that it’s getting harder to get by. Over the past thirty years, the cost of a college education has increased by 700% while wages have stayed flat. That means that young adults are starting with a considerable deficit compared to where their parents started.
Adjusted for inflation, the prices of homes have also increased over that time. Sure, houses have also increased in size, but that doesn’t change the fact that the average mortgage is bigger.
Now, forgive yourself if you are overspending and take solace in the fact that you aren’t alone, and that reading this article is the first step to curbing your overspending.
Today we are going to break down six typical causes of overspending so that you can identify what is causing you to spend a little more than you’d like. Once you know your spending patterns, you’ll then be able to make some changes to get your spending under control.
Let’s get started!
Repeatedly Making Impulse Purchases
Do you find yourself running to the store, buying baking powder and cleaning supplies only to find yourself purchasing things probably don’t need? What about grabbing fast-food on the way home even though you have a pantry full food?
Walking into any store is like walking into a 3D spending trap. The quicker you realize they are engineered to maximize spending, the better you’ll be equipped to avoid unnecessary purchases.
If you have an impulse spending problem, sit down with a loved one, and commit that you won’t buy anything you don’t plan on buying without waiting 48 hours to think about it. The act of vocalizing your plan will help keep you accountable.
That means that when you’re at Target buying diapers, and you walk past the loungewear section, you won’t purchase those comfy sweatpants, regardless of how bad you want them. If, after two days, you still can’t stop thinking about them and they fit in your budget, then you should get them.
More often than not, you’ll find that you don’t need that 7th pair of sweat pants.
If shopping on Amazon causes you to do the same thing, use a wish list to save products for later. Using time as a way to improve your decision making is an effective tactic.
At the end of the day, the reward centers of our brain are activated by impulse purchases, even though they aren’t in our best interest. If you can curb your spending and save more money, it could mean helping your kids pay for college, which most of us would agree is extremely powerful. Once we realize that our brains are tricking us into making impulsive buying decisions, we can understand what is happening and talk ourselves out of those purchases we don’t need.
Not Having Automated Savings
If you quickly check your bank balance on your phone and see that you got paid, you will get a false sense of how much spending money you have.
This is because if you plan to save for retirement, your kids’ college, your first home, etc., then all of that money can’t be spent. But we all know what ends up happening. We spend first and save later. Rinse and repeat.
For that reason, one of the best things you can do for yourself is to automate your savings. First, make sure that you are contributing to your retirement plan at work. Second, set up your direct deposit at work so that a portion of your money goes directly into a separate account.
This is the exact process that Yanely Espinal, creator of the MissBeHelpful YouTube channel, uses to keep her spending under control. She says, “To avoid overspending, I set up an automatic transfer out of my main checking account. Every time my paycheck hits the main account, a smaller portion automatically transfers to my flexible spending checking account. This made a big difference for me because it physically separated the money for spending and the money I need for my fixed expenses each month, like rent and groceries.”
If you make those changes, you’ll be in a much better financial position, even if you still catch yourself living ‘paycheck to paycheck’ since you’ll be saving a healthy portion of your paycheck.
Not Tracking Your Everyday Spending
You may manage your money passively. This means that you don’t pay attention or actively track how you spend.
At the end of every month, they think to themselves, “Wow, I thought I had more money than this.” Life gets in the way. Running the kids to and from activities and other commitments mean you have little time to do anything else.
However, not tracking your spending inevitably results in you not realizing how much you are spending or how little you are saving. You might not even be tracking your spending because you are afraid to see the damage.
In truth, tracking your money alone won’t magically limit your overspending, but it will give you the information you need to make changes. If you track your spending and realize that you regularly spend $200 on various TV streaming subscriptions that your family never uses, that’s a pretty good place to start cutting back.
Similarly, tracking your money as you spend it also has a psychological effect of making you less likely to make an unnecessary purchase.
Not Giving Yourself The Freedom To Spend
If you’ve ever tried to diet, then you know that it’s easy to stick to any diet for a couple of days. It’s that much harder to stick to it for an entire week or even a month.
The same principles apply to your money. You may realize that the #1 thing you can do to save more money and better manage your money is to make a budget. That goes without saying. But if you are too restrictive, and don’t give yourself wiggle room, you’ll bust your budget in no time.
Welcome to the world of guilt-free spending. This should be a part of your monthly budget that allows you to spend on unexpected things that you didn’t plan for. Imagine a girlfriend or coworker calling to see if you’d like to get your nails done. Instead of always saying no, you can use this guilt-free spending to give yourself permission to say yes!
The most important thing is that you must have a budget in place for this to work. You can’t skip the budgeting part and give yourself an extra $200 to spend every month. That’s not how this works.
The good news is that it will make budgeting a lot more tolerable and sustainable for you. That means you won’t go off the rails and overspend because you’re fed up with never being able to buy anything.
Not Planning Your Meals
If you think the only purpose grocery lists serve is to make sure you don’t forget to buy the cinnamon sticks while you’re shopping, then you’re mistaken. They also play a critical role in making sure you don’t end up buying things you don’t need, didn’t plan to buy, or don’t fit in your budget.
We’ve all heard the sage advice that you should never go to the grocery store hungry, or else you’ll be tempted to buy everything. If you’re a food-lover like me and you are always hungry, then every trip to the grocer is a test. Thankfully, a few minutes of planning before leaving home will mean that you’ll avoid overspending and making costly decisions while you’re there.
I typically go grocery shopping on Sunday afternoons with what seems like every other person in town. Before shopping, my spouse and I will sit down and write down our menu for the week. Our ‘menu’ includes breakfast, lunch, dinner, and any snacks our family will need. We will also peek in the pantry and see which ingredients we can use that we already have.
With a list of ingredients for all of the meals we’ll be making, we head to the store, and we only buy things that are on the list. No exceptions.
If you still find yourself unable to avoid buying things you don’t need, you can consider using an online grocery shopping service. Even if you have to pay a $5 fee, you’ll likely save since you won’t buy anything you don’t plan to.
Say goodbye to the days of overspending on groceries!
Not Realizing The Impact That Your Spending Is Having On Your Finances
When it comes to curbing a dangerous spending habit, few things are as effective as a dose of reality. I recommend using a retirement calculator to see how much money you should be aiming to save every month.
The chances are that you have some ground to make up, and you can use the thought of potentially not having a comfortable retirement as the motivation you need to stop overspending.
The good news is that it’s never too late to try to turn things around. It’s also a great way to address underlying issues. Overspending is simply a symptom of another problem. Whether overspending is an act of self-sabotage or a way to feel better or make up for other shortcomings, the reality is that overspending will significantly affect your ability to reach your financial goals.
That’s why we are so excited you are here because Qube is the perfect antidote to overspending.