If you have a habit of buying things you cannot afford, or things that you do not even need; if you have a tendency to spend on a whim; if you never keep track of your expenses; and if you live a lifestyle that is way beyond your income, then you might be guilty of overspending.
You might think that overspending seems harmless enough, especially because you only do it from time to time.
So you walk into a store thinking of purchasing only one thing, but you end up leaving with twenty other items you didn’t even plan on buying – what of it? “It’s not like I do it every day,” you say.
A purchase here, another there – what could possibly go wrong? “It’s just that one time,” you say.
The thing is, overspending creeps up on you. While it might seem innocent enough at first, when left unchecked it can – and it will – spiral out of control and turn into an addiction with disastrous consequences.
The worst part is that you remain completely unaware of everything until you have already drained all your savings and racked up too much debt.
Here are seven effective ways to stop overspending and help you keep your finances under control:
1. Track your expenses
The first step to help you keep your spending under control is to know exactly where your money is going. Tracking your expenses helps you manage your finances the way you want it. When you are completely aware of your spending behavior, you can better distinguish between essential and nonessential expenses, and identify what expenses to cut back on and what to prioritize instead.
To keep track of your spending, you want to begin by listing all of your expenses in a typical month. That means every bill you pay and every purchase you make. Look at your monthly bills – utilities, cable, phone, Internet, mortgage, insurance, credit card billing statement, and otherwise – to help you catalog your usual monthly spending.
Include your day-to-day expenses, no matter how small and unimportant these seem, as well as expenses that occur regularly but not necessarily every month, such as car maintenance.
When you have a complete list of your expenses, arrange these according to categories such as housing, utilities, transportation, food, clothing, entertainment, etc. Then total each amount.
Remember to distinguish between fixed expenses and variable expenses. Fixed expenses cost the same each month, like rent, mortgage, and insurance, among others. In contrast, variable expenses are costs that vary each month. These include gasoline, groceries, electricity, phone, etc.
Once you have a clear picture of how much you are spending in a typical month and where, you are now able to pinpoint problem areas and make adjustments accordingly. You are now able to pick out expenses you can cut back on and by how much.
Perhaps you’re spending too much on your morning lattes at Starbucks. Or maybe being subscribed to three streaming services – Netflix, Amazon Prime, and Hulu – all at once might not be such a good idea after all. And why do you still pay for gym membership when you literally have never stepped foot inside an actual gym?
2. Create a budget
Now that you have an idea of your spending behavior, you can begin to work your expenses into a budget.
A budget is one of the most effective ways to stop overspending. Your budget enables you to take control of your money and direct it according to your financial goals.
Your budget is essentially your spending plan. It is an outline of your income and how you want to spend it and where you want to spend it on. It allows you to see in advance whether you are spending more or less than you can actually afford.
To create a budget, you want to begin by calculating how much money you actually have available for budgeting in a typical month. That corresponds to your monthly net income or your take-home pay, plus any additional income, such as pension, alimony payment, child support, etc.
Once you have computed your budgetable income, you can begin dividing and allocating it according to your expenses. Remember, an ideal budget ensures that you will always have money for the things that matter most.
Thus, you want to prioritize allocations for essential needs – food, housing, utilities, transportation, and basic clothing – as well as savings and payments for debts, if you have any. Once all of these are taken care of, only then can you apportion money for nonessential expenses, such as entertainment, vacations, and otherwise.
Your budget should help you keep spending to a minimum. Look for expenses that you can reduce, or if possible, completely eliminate. Do you really need to pay $5 for coffee every morning? Why not pack your own lunch instead of eating out every time? Since you never watch TV anymore, isn’t it time you ditched your costly cable subscription?
But your budget should be realistic, too. Keep in mind that you actually have to live on and by it. It makes no sense when you make your budget too harsh and austere – you’re only setting yourself up for failure. So make sure your budget has enough wiggle room, and some fun money, too!
3. Prioritize saving
Saving is a crucial part of keeping your spending under control. Think of it this way – the more money you set aside for future use, the less you have for immediate spending. Saving not only helps you curb overspending, it also cultivates thrift by forcing you to make do with a smaller budget.
However, despite being convinced of its merits, a lot of people save only as an afterthought. They would rather spend their income first, then save only what is left over. But between the bills that need paying, and the items that need purchasing, there is usually little or nothing left to save.
So you are absolutely serious on controlling your spending, then you need to make saving a priority.
Before anything else, you want to start with an emergency savings fund. It will help secure yourself against unexpected expenses that can leave you financially worse off, such as illness, loss of income, or whatever. Ideally, your emergency fund should be worth enough to cover at least several months of your expenses.
From there, you can decide what other worthwhile goals to save for. Short-term goals include setting aside money for a new smartphone, a car, or vacations. Long-term goals include saving for a mortgage deposit, your child’s college education, or retirement. You might not be able to save for everything you want, so always be mindful of what goals need to take priority.
Admittedly, it is difficult to make a conscious effort to save. However, it becomes a lot easier and so much faster when it “just happens”. To ensure that you always have money for saving, and that you are continuously advancing towards your financial goals, you need to make saving automatic.
There are different ways to automate your savings. One is through direct deposit. You can request your employer to deduct a certain amount from your paycheck – $100, 10% of your income, or whatever – every pay period, have it directly deposited to your savings account, and then send the rest to your checking account like nothing happened.
4. Think over your purchases
Keeping your finances under control includes developing good spending practices. One such practice is refraining from impulse buying.
To prevent financial impulsiveness and avoid overspending, you need to put in the time and thought to every purchase you make, from major purchases to the more trivial ones.
Taking the time and effort to find the most economical flight and hotel deals as you put together an itinerary for your month-long trip to Europe can save you hundreds to thousands of dollars.
Likewise, sparing just five seconds to ask yourself if you really need that checkout-stand magazine before adding it to your cart can save you five bucks.
So plan your purchases. Before heading out to the mall, grocery, or wherever you intend to shop, write down the things you need to buy and allot a budget for each. And be sure to stick to your shopping list, no matter how impressive those newly released designer clothes would probably look on you, or how mouthwatering those freshly baked apple cinnamon muffins smell. Remember, if it’s not on your list, then it shouldn’t be in your cart as well.
Whenever possible, plan your route through the store, too. Most stores are deliberately designed to make customers stay longer than they really need to. The longer customers stay, the more likely they are to overspend.
Knowing beforehand which shelves, aisles, and sections contain the things you need can save you valuable time and money. This way, you avoid wandering aimlessly and picking up overpriced and unnecessary items along the way.
Before making a major purchase, do your research first. Make sure that you really need the item and that you have the money to buy it. Shop around to find the best price for quality. Read product reviews and ratings.
When shopping online, give yourself enough time to think over your purchases. Before adding an item to your cart or even your wishlist, make sure you have a really good reason for purchasing it.
Wait for at least 24 hours before paying for the items you have on your cart. You might be surprised by how many of these items you are suddenly uninterested in buying on the following day.
5. Use cash more
You’re at the checkout counter, ready to pay for the basketful of whatever caught your fancy. So you grab your wallet and start counting out bills. But as you do so, you suddenly get a weird, awful feeling – is it discomfort? Pain? Remorse?
A moment of indecision grips you. Now that it comes to it, you suddenly feel loath to part with your money. Your precious, hard-earned money. You think of all the work hours you put in just to earn this meager amount. Suddenly, handing out the bills to the cashier feels too much! You’re in pain. You’re hurting. And you’re wondering if you’re actually going insane.
Well, you’re not. You’re experiencing what psychologists and behavioral economists call the “pain of paying”. It is based on the idea that since people generally do not like to spend, they tend to feel pain whenever they part with their money. The pain varies depending on different factors, like the mode of payment.
Studies show that you feel the pain of paying most whenever you use cash. Because cash is physical and noticeable, you are very much aware of how much you are actually parting with. Whereas if you pay with credit, you feel less pain because you cannot really see how much money you are spending with each swipe of your card.
The more you feel the pain of paying, the less likely you are to overspend. Thus, opting to use cash to pay for your expenses wherever and whenever possible is an effective way to keep your spending under control.
If you find yourself struggling with habitual overspending, you might want to try the cash envelope approach to budgeting. It is where you set aside cash for your expenses and put these in envelopes labeled according to categories, such as groceries, gas, dining out, etc. If you need to pay for an expense, like groceries, you only take the cash from the envelope designated for groceries, and you take only the exact amount that you need. Once the cash is gone, well, it’s gone. That way, you are not tempted to overspend.
6. Lower credit card spending
With credit cards, it’s easier to pay for your purchases. Just a swipe of your card and you’re all set – far more convenient than counting out multiple bills.
But with credit cards, it’s also easier to overspend. Because there is really no visual cue that you are losing money, you don’t feel the pain of paying as much as you would if you were using cash. Paying becomes pleasurable, even. So, you tend to not give much thought to how much money you’re actually spending with each swipe – at least not until your billing statement arrives.
As much as you would like to think that your credit card is free money that you can spend at every opportunity, it’s not. Whatever pleasure you derive from swiping your card is only fleeting. The pain of paying all that debt lasts far longer. So, to avoid overspending, you need to use your credit card responsibly.
Curb your credit card spending to a minimum. As a general rule, you want to keep your credit card utilization– the percentage of your credit limit that you’re using – to no more than 30%. Never exceed your credit limit or you will risk penalties from your credit card issuer. Remember, having a high credit limit does not correspond to having a lot money in the bank.
If possible, avoid carrying your card with you all the time. Keep it out of immediate reach. Leave it at home or somewhere safe. Lock it up in a secure place that requires considerable effort when you have to retrieve it. That way, you are not tempted to whip out your credit card every time you pass by the mall and see those newly released clothes, shoes, or perfumes from your favorite fashion line.
Use cash instead to pay for your expenses. Use your card only when paying with cash is not possible. Reserve it for emergencies.
When shopping online, never store your credit card information on retailers’ websites. If you already have, then remove or delete it. When you force yourself to spend time to find your wallet, dig out your card, and input your credit card number every time you make a purchase, you might reconsider.
7. Reduce monthly expenses
Wherever possible, find ways to significantly reduce or even completely eliminate recurring monthly expenses. If you are still regularly paying for products and services that you rarely or no longer use, or you do not really need to spend on, it’s about time you cancel these and look for cheaper alternatives.
Check your monthly subscriptions. If your phone bill is too expensive, you can always downgrade to a cheaper mobile plan, or trim your current one by ditching costly data plans, insurance, or other unnecessary features. Or you can switch to another carrier that offers the same services but costs a lot less.
What about cable? If you rarely or never watch TV anymore, you can always downgrade your cable subscription plan from premium to basic. Or perhaps it’s time to cut the cord.
Consider switching to online streaming for your entertainment needs. Most movie streaming services, like Netflix, Hulu, Amazon Prime, and HBO Now, offer free trials for multiple days. Ditto for music streaming services, like Spotify Premium, Apple Music, YouTube Red, and Tidal. You can watch a lot of movies and TV shows, or listen to different songs, without spending anything. Just make sure you cancel after the free trial if you aren’t sold on paying for a subscription.
What about all the magazines that show up in your mail that you never even read? And keeping up to date is important, but if your wallet cannot keep up with your newspaper subscription fees, then look for cheaper alternatives. You can always read from free news websites and apps.
If you find that your gym membership is making bigger gains from your wallet than you do from working out, then consider working out at home. You can check out home workout routines and bodyweight exercises that utilize little to no equipment online for free.
You also want to lower your utility expenses. Switch to LED light bulbs, which consume 90% less energy than incandescent bulbs and can last for many years. Use dimmer switches so you only use as much light as you need. Turn off the lights when you leave the room. Buy energy efficient appliances. Unplug all electrical devices when not in use.
Install a programmable thermostat, which, when properly set and maintained, can have significant energy and money savings. Make sure your air conditioner is properly maintained – change the air filters regularly, and keep the vents open and clean.
Wash your clothes on cold water setting. To save on energy and water, only run full loads of dishes and laundry, and take shorter showers.
One final thing…
There are numerous other ways to stop overspending, but these aforementioned seven are some of the most important. On their own, these methods may prove less than potent. The key is to put into practice all seven at once for maximum effect.
Remember that no one can reform their undesirable spending habits overnight. Since overspending is a learned behavior, it takes plenty of time and no small amount of dedication to “unlearn” it. Difficult, yes, but the fact that it can be done is all that matters.
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