Spending more money than you earn is one of the most common reasons why Americans are in financial distress. Overspending, or spending more money than you bring in month to month can be a vicious cycle. Like many other things in life (working out, eating snacks, binging Netflix), the more you do it, the more you want to do it.
A 2015 survey by the Pew center found that only 46% of the almost 8,000 Americans surveyed reported earning more than they spent. This means just over half of respondents are overspending on a regular basis.
Why do Americans overspend?
From trying to keep up with the Jones’ to deeper emotional reasons, there are a number of reasons why people overspend.
Do you ever find yourself on a website clicking items into your shopping cart because you’re bored? Or because you can’t sleep? Or because you’re disappointed in the world and you think those new leggings might make you feel better?
Emotional spending is real, and I’ve done it myself. It’s dangerous to your financial situation, too. If it makes you feel good in the moment (like the dopamine hit of certain foods can do), you’re likely to repeat the behavior.
You can justify it (you deserve it)
I went through a phase after college where I would go to Marshall’s or Target for funsies (I know I’m not alone in this) and spend around $100 each trip on nonsense. I regularly redecorated my bathroom, found the perfect dress for that unknown future occasion, and bought the latest kitchen gadget I might never use. The way I justified all of this spending to myself?
“I deserve it. I work hard all week and I should be able to treat myself.”
But treating your hard work by spending money is the equivalent of treating yourself to a cupcake as a reward for going to the gym. It doesn’t make sense, and it’s detrimental to the positive behavior for which you’re rewarding yourself.
It’s socially acceptable
It seems like everyone these days has consumer debt. Most people have multiple credit cards and loans for houses, cars, or education. It’s part of growing up. Right?
Perhaps it’s time to shift our messaging as a society that massive debt isn’t necessary. By making a few smart decisions to curb spending where it’s not needed, we can set ourselves up for a bright financial future.
Potential issues that arise from overspending
You reap what you sow. And in the instance of overspending, choosing to spend more money than you have available means you’ll be missing it somewhere else.
- You start to miss payments on bills – One of the first things that will happen when you overspend is the inability to meet your monthly commitments. If you have seemingly standard expenses, rent/mortgage, car loans, student loans, utilities, credit cards, etc., things might start to slip. When there’s not enough money to go around, you’ll be forced to make decisions on which bills get full payment and which get pushed aside for next month. Once you start the debt balancing act, worry and stress begin to settle in.
- Others get more of your hard-earned money – Failure to make timely payments typically means you’ll be accruing unnecessary interest. This means for every month you make the minimum payment on your credit card or auto loan, you’ll stack up more interest that you’ll have to pay back later. Over the life of a loan, this can add up to hundreds or even thousands of dollars.
Ways to combat overspending
Now that you understand the implications of overspending let’s talk about ways to adjust to try and stop overspending in its tracks. The most important thing to remember is to not get down on yourself while you’re figuring it out. The fact that you’re seeking out strategies to limit your spending is an amazing first step in the right direction.
Change your narrative
Advertisements are sending us messages all day long on the television, radio, and the internet. The advertisers are trying to convince us that our lives will be better if we just buy their product. We’ll be happier if we wear a certain brand of shoes, get the new burger at the fast-food restaurant, or support small businesses making adorable coffee mugs on Etsy. And if they’ve done their job correctly, you’ll think you actually can be happier. So you grab your credit card (or let’s be honest, we’ve all memorized our card numbers by now), and you order happiness shipped directly to your door.
We have to protect ourselves by making the mental shift from that of scarcity to that of abundance. Simply changing the internal message from “I need that to make me happy” to “I feel I have everything I need right now” can make a huge difference. Think long and hard about what truly brings you joy daily. I’d be willing to bet it’s not always delivered to your door.
You don’t know if you fall into the category of overconsumption until you track. It’s easy to spend $15-20 on Amazon on those resistance bands you’re definitely going to use or to go out to lunch all week long at $15 a pop. But all of that daily spending adds up at the end of the month.
If you’re not careful, you can spend entire paychecks before you even have them. But you won’t know until it smacks you in the face. Try tracking expenses for a week to start, and you might be surprised to find out just how much flows out of your accounts vs. in.
Look for cheaper substitutes
Most of the time, the name brand thing you’ve been eyeing can be found a lot cheaper. There are even sites out there that help you buy designer clothes for less! Yes, we all love the Lululemons and Athletas of the world, but have you seen the fitness gear Old Navy’s been putting out? I know it’s not the same, but if it gets the job done now, you can get back to the pricy stuff down the line when you have more expendable income.
Buy in bulk
One of our most significant household expenditures in any given month is food. In fact, behind housing and transportation, this is one of the largest household expenses for everyone. I like to make the healthiest choices I can and buy organic where it makes sense. One of the best ways I’ve found to do this is to buy in bulk.
I used to loathe stores like Costco. But once I realized how reasonable the prices are for the quality, I’m a believer. Just be cautious that you don’t start to overspend on the bulk level because that gets expensive fast. You can put five things in your cart at Costco and be well over $100. As long as you shop smart and only get the things you’re going to use, buying in bulk can result in big savings.
Check in with future you
A tried and true test I perform before I consider a purchase is to think about how I’ll feel a year from now. I channel future me and ask if I’ll be happy with the purchase, and if I’ll even still have the thing then! If the answer is no to either, it’s not worth my time or money.
Don’t let yourself go there
Marshalls and Target have been my downfall in the past. Not only do these stores have appealing products, but everything is on sale. When you see that designer dress for 50% off how can you not buy it?
My solution in recent years has become not to let myself go there, physically or online. It’s the equivalent of keeping ultra-processed foods in your pantry. If you have them around, you will eat them. If you put yourself in a position where you’re in the store or on the website, and you see the deals, you’re more likely to buy them.
Consider taking a month off from pleasure shopping, or institute a 24-hour rule where you have to leave any purchases in the shopping cart for 24 hours before checking out.
Be intentional about your purchases
It’s dangerous to browse without knowing what you’re looking for. And in my experience, it results in spending a lot more than I wanted to. It can also lead to buyer’s remorse if you end up coming home with a bunch of things you didn’t need.
I like to keep a list of “bigger” purchases (over $100) as I think about the things I want. Then, when the time comes that I have extra money to use, I go back to my list and decide which item I want to move forward with buying. Consider creating a list with your top five wants. (This is also a great way to make sure you have gift ideas for the family when the holidays roll around.)
The main thing about overspending
Everything you buy has an opportunity cost. This means with every purchase you make, you’re indicating that it’s the best financial move for your money. The $100 you choose to put towards a new dress is best served on that dress and not in an investment account. If that’s a conscious decision based on your income and expenditures, that’s wonderful, and you’ve got your financial ducks in a row. But if you’re spending out of habit, boredom, or sadness, it might be time to take a step back and reassess.
Without resolving overspending, virtually all other financial moves will not matter. Until you get a grasp on where your money is going and give every dollar a purpose, you might as well send up a prayer and hope for the best. But the main thing about overspending is that it’s 100% within your control to correct. And when you know better, you’ll do better.
I challenge you to sit down and write out all of your expenses in the last 30 days. Does anything stand out as something you didn’t need? When you add everything up, is it less than what’s coming home in your paycheck? If it’s not, it might be time to take a hard look at spending habits and see if you can come up with a spending plan that will result in less stress in the long term.