11 Causes of Overspending and How to Avoid it

Simply spending less than you earn is a sure way to grow wealth and achieve financial freedom. Although it is a basic notion, many people struggle with overspending. If you find it difficult to limit your spending, you may need to investigate the root causes of your overspending. When you understand what factors influence your spending, it gets easier to take action to save money and spend less than you earn. This article will explain the 11 Causes of Overspending and How to Avoid It.

What Is Overspending

Overspending is when someone spends more than they can afford. It could be due to a sudden event, like losing a job or a slow change in financial habits. With energy prices up 41.6% year over year and grocery prices up 12.2% over the same period, inflation can also cause overspending, and the recent rise in prices has caused many people to cut back on their spending.

"Because of high inflation, we've seen a change in how people spend their money. They're spending less on things they don't need to, like food and gas, and more on things they do.

For instance, spending on gas has a big effect on behavior because we feel the pain every time we fill up, and we're reminded of how much gas costs every time we drive by a gas station. But the price of a gallon of gas has dropped by 80 cents in the last few months, so people may put more money back into spending on things they want. Because of the pandemic, people haven't had much time to do fun things. The statistics show that there is a demand.

Related: Signs You Don’t Make Enough Money? Here’s What to Do

No matter how hard it is to reach your financial goal, it is the key to getting out of debt and becoming financially independent. Overspending is a disease, and it may be one of the reasons you haven't reached most of your goals.

But overspending can be fixed, just like any other illness. To find a cure for such a disease, it's important to get to the cause of the problem. Keep reading to get a clear picture of your spending and find solutions to problems.

How Inflation and Rising Interest Rates are Causing Overspending

The inflation period is not the time to be too hard on yourself because you spent too much. Costs are higher than they used to be. In the US, prices of goods have gone up quickly over the past year, making it harder for people to keep up. The cost of energy, gas, housing, travel, and education have all contributed to inflation that keeps going up.

As prices for goods and services keep going up faster than people's annual net income, it gets harder for some people to keep spending the same way.

Read also, 9 Scary Money Statistics You Don’t Want to Be a Part of (and What to Do If You Are)

As the economy changes, so do the rates that the Bank of America charges to borrow money. The interest rates sometimes go up and sometimes go down. Mortgages, lines of credit, and loans with higher interest rates mean people have less money to spend on other things. High-rising prices could cause overspending if the budget isn't changed.

What Are the Signs I’m Overspending?

These few warning signs show that you are overspending

●   You Don’t Have a Budget.

If you don't track how much you spend, you probably spend too much. And if you've tried to stick to a budget but haven't been able to, you're spending more than you should. Set aside time to look at how you spend your money in detail so you can start new habits.

●   Most of What You Earn Goes Toward Rent.

People often say that your housing costs shouldn't be more than 30% of your monthly income. If not, you might spend too much. Depending on where you live, it could be very hard to get around rent issues.

PS: Remember that you can talk about anything. Your rent is one of them.

●   On the Weekends, you Don't Miss Grocery Shopping.

Most people wait until the weekend to go grocery shopping. But the best time to save is during the middle of the week, especially on things that don't last long. Meat and dairy come to mind. Oh, and here's one more way to save money at the store: don't buy produce that has already been cut up.

●   Your Favorite Thing to Do is Shop.

You might spend too much money if you shop online or go to the mall to kill time when you're bored. Set a weekly limit on how much you will spend on shopping instead. That way, you can plan for impulse buys, which won't ruin your financial plan.

●   You Haven't Looked at Your Subscriptions in a While.

Try to make it a regular habit to look over your subscriptions. Because it's easy to forget which ones you don't use anymore. So they spend more than they should.

11 Causes of Overspending and How to Avoid It

1.  Your Inability to Resist Sales Discounts

Your inability to resist sales discounts is one of the huge causes of Overspending. Who doesn't like discounts? Sales discounts are something that sellers know very well. Because of the discounts they often tempt you to buy what is ridiculously cheap, that you actually don't need.

Even if you don't need the item at first, the word "discount" makes it too tempting to pass up, and you buy it. Who would want to resist a $1 channel bag or $5 airpods on AliExpress?

You should know that a discount isn't always a real discount. There are times when the price of an item has already been raised, so when it goes on sale, it only goes back to its regular price. Also, a lot of discounts may also be a way to push out aging & unsold products.

Some offer discount packages in exchange for a minimum purchase. You have to buy x items because you want the discount. When there are many sales, one way to avoid spending too much is to decide ahead of time what you want to buy, and importantly, why you want to buy it. Remember that veering off your priority list may not be the best.

Setting a budget for shopping needs is another way. You can use the money you've allocated for the month's as long as it hasn't all been spent. But you know you're done shopping for the month when you've spent all your money. This is not to say you shouldn't take advantage of sales discount, however, knowing when you already started overspending.

Related: How Much Should You Spend on Hobbies: A Simple Guide

2. Lack of Financial Discipline

It is plain and direct; you must have some financial discipline in your life to restrict your expenditures and not get caught up with overspending. We sometimes dismiss such things as minor or inconsequential, although they are incredibly important.

The goal is not only to create a budget but also to stick to it and live by it. The whole goal of a budget is to bring some discipline into your life, and for that to happen, you must follow it.

Budgeting is one of several methods for achieving financial discipline, and it is necessary to avoid overspending. If you do not live on a budget, you will not know how much you can spend without going into significant debt. Making a budget is the beginning of financial discipline and will help you deal with the causes of Overspending.

Related: What Is A Financial Safety Net? And Why Is It Important?

It is one of the most serious issues that individuals encounter, and it is quite tiresome, yet we must all grow up at some point.

You should consider every penny; to do so, you must understand how to create a budget. If you are not a math person, you may want to use apps like Digit, which does the arithmetic for you and speeds up the process. The goal is not only to create a budget but also to stick to it and live by it. The whole goal of a budget is to bring some discipline into your life, and for that to happen, you must follow it.

3. Impulsive Spending

One of the big causes of Overspending is that people buy on impulse. Shoppers make 76% of shopping decisions while they are already in the store. As a result, 57% of shoppers spent more money than planned.

The reason for overspending is that stores' decisions depend on things that can change at any time. A hungry shopper is more likely to buy more food than they need and try to explain why they did so.

One way to stop spending on a whim is to plan. A list of things to buy isn't enough. Make a budget to ensure you don't spend more money than you planned. Some shoppers only bring the exact amount of cash they plan to spend, so even if they want to splurge, they don't have enough cash.

4. Underestimating Your Expenses

People often spend too much because they don't consider small costs enough. Big monthly costs like rent, car payments, and utilities are easier to track in your head.

But the little things like going out to eat, buying coffee or snacks, or even paying for media online without even getting out of bed are a big reason why people spend more than they should (compared to going out for a movie, which mentally registers as an expense).

Underestimating your expenses is another way that making a budget, even for "small" expenses, can keep you from wasting money on things that tend to slip through the cracks.

Read also, 13 Reasons To Track Your Expenses And Control Your Spending

5. Having Zero Money Goals

Another common reason people overspend is that they don't have a strong reason for making financial decisions.

This is often called your "why," for spending, which is a very important part of making money.

So, one of the best ways to fight the urge to spend money is to find a reason that makes you want to save money even more. Keep creating more categories in your budget that requires more savings.

For example, what if your financial goal is to give your family safety and financial freedom? Then, whenever you want to spend money on something you don't need, you will have to convince yourself that it's more important than your family.

But that's not the end of it! Your financial goal could be to save enough money to go anywhere in the world you want. Or, maybe your goal is to save enough money so you can quit a job you hate and start working in your dream field.

Whatever it is, the stronger your reason for making financial decisions, the less likely you will spend more than you need to.

Don't miss the 45+ of The Best Apps For Saving Money

6. Credit Card Spending

When used right, credit cards can be a very useful tool. In the early days of these cards, you usually had to pay off the whole balance every month. Paying off the balance was helpful because you could buy things without using your own money. At the end of the month, you could pay it all back. This arrangement was like a short-term loan with no interest. When used the way it was, paying the whole balance at month's end can be a powerful way to manage your money.

The problem comes when you start carrying a balance from one month to the next. If you buy something for $200 with your credit card and can't pay it back in full at the end of the month, you've started a slippery slope. It might start well, and you might tell yourself you'll have enough next month, but most of the time, that doesn't happen.

Related: How to Cancel a Pending Transaction on a Credit Card, Debit Card, and PayPal

Why Reducing Credit Card Spending is good for Your Finances

For example, if you have less debt, you'll have fewer payments to make each month and more money to save and invest. In the same way, the less you spend on credit cards, the less you'll have to keep track of, and the less likely you are to miss a payment or spend too much.

Even more important, if you never use a credit card to buy things, you never have to worry about getting into high-interest debt.

If you can't stop overspending, stopping to use credit cards is one of the best things you can do for your finances.

This period is when the hefty card interest rates start to bite. The card company makes the minimum payment due a very small amount, implying that you can afford to make the payment; however, if you continue to pay only the minimum, you'll end up spending the next 20 years paying off that original purchase and spending more on interest than the original item's cost. That is not the way to amass wealth.

See also, How to Change Your Credit Card Due Date

7. Giving in To Peer Pressure

It's fine to hang out with friends and do fun things to make friendships stronger. But if you spend too much because of a friend, you might want to think again.

One common example is when people go out to eat together. A friend chooses a pricey place to eat. You lose your appetite when you look at the prices on the menu. But you can't do that if you don't order any food.

After eating, friend A asks if the bill can be split in half. The other friends don't say anything. If you are the only one to object, people may look down on you or start regarding you in a grey light.

How Giving in to Peer Pressure Causes Overspending

We often try to make a good impression on people by what we wear. We do this to be liked and praised more by people. It is by far the most dangerous trap you could ever fall into.

Whether you buy a shirt that you don't need, a shirt that is too expensive, or a car you can't pay off, you will always spend more than you should. Peer pressure is a very dangerous box to fall into, and it can be hard to get out of it.

You might spend money to impress someone, and that person might not do the same thing to you or even notice your efforts. Spending money to impress someone could continue until you run out of money. How do we stop it? That's the question.

So, what is the answer to overcoming the peer pressure to spend? You can try telling them that you have other needs that are more important to you, like how you can't go out to a fancy restaurant for a while because of other needs. Good friends will know what you're going through.

Or, you can cut down on how often you go out to eat with them. You can say you have other things to do.

8. Easy Access to Cash

Remember when you had to go to the bank to deposit a paper check from your employer and then keep cash on hand or write checks? Those times are long gone, and most people can get to their bank accounts anytime or night. Having easy access to cash can be risky, as well as cause overspending.

When you had to make sure you had enough cash on hand or balance your checkbook every day, spending money meant you had to plan and do some simple math.

Now, you just swipe your debit card like you would a credit card, and the money is taken out of your account electronically. When you don't give someone cash or a check for a purchase, it can feel like you aren't spending any money. Try using cash to get a handle on your spending.

9. Prioritizing Immediate Satisfaction Versus Long-term Benefits

Prioritizing instant gratification over long-term benefit is one of the causes of Overspending. We are predisposed as humans toward our current selves and attaining what we desire right now. However, the desire for quick gratification often means we focus less on future gain.

We're more concerned with the here and now than the financial gains that will be reaped in the future. We're already predisposed to do what feels nice in the moment.

The reason is that the existing cost of delayed satisfaction can be painful, which isn't particularly compelling from a behavioral standpoint. As a result, we only make decisions that make us feel good at the moment.

How Lack of Financial Priority Affects Retirement Goals

Zero financial priority is a major reason it is more difficult to begin early retirement savings. Retirement is simply so distant in the future, but there are various things, services, and opportunities that feel much more achievable in the present, and that's often where we put our money.

Let's face it: buying something for yourself feels wonderful. We all appreciate receiving something new, whether it is a new pair of shoes, the latest video game, or even a decent book. As long as you don't go overboard, there's nothing wrong with a little splurge on yourself.

This is when having some "fun money" in your budget can come in handy. Set aside a little buck from each paycheck for emergencies like these. You'll feel good about your purchase whether you pay cash or with a credit card, but you'll feel much better knowing that you won't have to spend the next two years trying to pay it off with 20% interest.

See the Best and (Worst) Places to Keep An Emergency Fund

10. Emotional Spending And Boredom

One of the main reasons people spend money is because they give in to their feelings and make decisions based on them. People often spend a lot of time scrolling through online stores just because they are bored. Endless scrolling through online shopping websites is another idea that falls under the umbrella of emotional spending. Ease of access to smartphones and shopping apps!

https://bit.ly/3WByj16