5 Reasons You Overspend and How To Stop

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4 Min Read

George Washington from the dollar bill keeping his head above water to symbolize the sinking feeling of overspending.

Overspending can be a debilitating trap that keeps you living from paycheck to paycheck. It can also prevent you from reaching some financial milestones and lifelong dreams, such as paying off debt, being financially secure at retirement, or setting up that emergency fund.

However, a few financial tweaks can alleviate this burden and set you up to better handle your finances.

The 5 Most Common Reasons for Overspending

Reason 1: Lack of Financial Ed

A hot topic among consumers is the lack of school-level financial education, or financial literacy, to prepare the population for financial fundamentals such as taxes and investing. Yet, these are critical to building a good financial foundation. Financial acumen also lets you in on the difference between financial wants and needs and how to prepare yourself for them through methods such as savings.

Reason 2: Instant Gratification

Let’s face it—we’ve all gone grocery shopping only to get home and order in because it’s so convenient. However, easy access to products and services also makes us look at money in the same way. This results in a buy now, pay later culture, which springboards high levels of debt or spending without knowing whether we’ll need the funds before the next payday. This also creates a mindset that saving and investing simply takes too long, which results in low emergency savings or a lack of financial preparedness, such as funding your retirement.  

Reason 3: Emotional Spending

Retail therapy is a marketing ploy that spirals into an endless cycle of purchasing and guilt. It also means that you’re spending on a whim instead of creating a budget that would allow purchasing those items without putting you under financial pressure. The emotional gratification is short-lived when that credit card payment becomes due.

Reason 4: No Financial Direction

There are few things as daunting as setting up a financial plan. Instead, it’s easier to go into auto-pilot—paycheck comes in, monthly expenses get paid, and whatever is left is free to spend. The problem is that without financial direction, your financial standing is unclear, and it takes a costly event or a financial disaster for you to focus and know where your money should go. It might be a worth looking into your financial wellness.

Reason 5: Misusing Credit

That shiny new credit card that’s meant for the occasional financial emergency has suddenly become an accessory that pops out every time you feel the urge to treat yourself. But that is quickly replaced when the credit card statement lands, and you’re faced with a large installment and even larger interest rate.

How to Stop Overspending

It takes some discipline, but with careful planning, overspending can soon be a thing of the past.

Tip 1: Budget

Every good financial plan needs to start with the basics, and when it comes to personal finances, that’s a budget. A budget allows you to account for every dollar. It also helps you understand areas that need a bit of tightening up and areas that deserve a bit more of the budget. While it helps to cut down on coffee trips and magazine subscriptions, there are more sustainable ways to curb overspending.

• Create categories for the items that tend to be a money drain. These items are areas where you can quickly lose track of spending. They include daily coffees at the local Starbucks to bigger expenses such as gadgets and electronics. When you know where the money goes, it’s easier to manage.

• Check if your rental and car payments are in line with your income. Overspending doesn’t just happen on shopping trips to Target and H&M. It can also happen when you’re looking for that sunny little apartment that overlooks the park or a car that features better horsepower than your brother-in-law’s Beemer. A good rule of thumb is to make sure that the car installment isn’t higher than 25% of your after-tax income, and your mortgage or rent payment is no more than 30%.

• Budget for entertainment. Everyone needs a little downtime. So it's important to budget for fun and friends as much as anything else. Set some money aside for the activities you most enjoy, and maybe cut out the activities you're less interested in.

You can read more about budget percentage breakdowns and the 50-30-20 rule to see how you might get started with a budget.

Tip 2: Financial Education

Eat, sleep, and breathe financial education for as long as it takes until you have a handle on your finances. There is a wealth of financial gurus to discover who offer countless financial literacy books and courses on every financial topic out there. So start studying, and find a method that works for you.

Tip 3: Reward Yourself

Overspending because you constantly feel like you need to reward yourself for enduring a tough meeting or a bad date or anything where shopping is a soothing mechanism is not great. However, patting yourself on the back because you’ve saved x amount or you pay your credit card in full every month is something worth celebrating. This helps you stay on track and motivated to create more money goals. One of these best wishlist apps can help you keep track of the things you really want when it's time for a little shopping reward. And if you do decide to give yourself a reward there are still ways to save money shopping or even thrift store shopping.

The Bottom Line

Finances are simpler when you have a plan. What if all your goals and plans could be under one roof? With the Monorail app, you're in control of your finances.

See how you can start curbing your spending with a wishlist.

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