Do you ever look at your bank account and wonder, “Where did it all go?”
Well, if you are not wondering where your money is going, expect financial trouble sooner or later.
There are several reasons why we tend to overspend. And overspending is not easy to combat. Most often than not, the reasons why we overspend are deep-seated. So, to successfully combat overspending and change our money habit, we must confront the triggers of our tendency to overspend.
Financial advisers have identified common reasons why people overspend. Today, we are going to look into eight of them and provide answer to how we could overcome them.
Here are eight common underlying causes for overspending and how to overcome them.
The problem: You are using credit card.
While credit cards are not generally used in the Philippines in other ASEAN countries (e.g. Vietnam, Malaysia, Indonesia, etc.), a significant portion of the Asian population is using credit cards, too. In the United States, Americans made twice as many in-person transactions using cards than cash last year, and, over the next decade, debit cards alone are expected to overtake cash as the main form of currency used for all transactions.
And let’s face it. Using a card–even a debit card–simply does not feel the same as handing over plain old paper cash. There is something about taking one little card out of our wallet that is so much easier and less painful than counting multiple bills, handing them to a cashier and watching them disappear into the bowels of the register. It can also be a hassle to go to an ATM on a regular basis and many people are uncomfortable carrying a lot of cash (especially in Manila).
But the downside of carrying cards is the ease with which you can overspend. The pain of seeing your funds diminish when you hand over cash actually acts an effective barrier to overspending, a response you cannot expect from using cards.
How to fix this: Try using cash for a week (or even a month). Hit the ATM on Sunday and take out the amount of money you feel comfortable spending that week on everyday purchases. Put it in an envelope, and use that as your ATM for the week. Remember that your credit card grants you money you do not actually have, so it does not only prompt you to overspend, it actually might trick you into spending money you do not even have!
The Problem: You are living beyond your means.
If you’ve lived a certain way for a while, and suddenly encounter a financial hardship or additional expense, it’s often hard to give up the lifestyle you’ve been accustomed or to cut back, even if staying the course means racking up more debt.
Another factor why most of us tend to live beyond our means can be explained by a principle of economics called income-permanence theory. We think that money’s gonna appear twice a month or once a month in our payroll account and so it’s okay to spend today and them later. The dangerous side of this is that most of the time, unexpected costs come and our shopping spree have in effect added burden on our monthly budget.
How do we fix this: A little preparation goes a long way. If you make a point of consistently living below your means during good and bad times, and make sure you have at least six months of savings set aside, you’ll have a cushion if your expenses jump (with a new baby, say, or a long-term illness) or your income drops. One easy way to learn to live on less and build up your savings: Set up an automatic transfer into a savings account that you don’t touch until, or unless, you need it (Bank of the Philippine Islands have this program, you might want to check it out). After a few paychecks, you won’t even notice it’s gone and won’t look at it as money to spend.
The Problem: Your past and your childhood.
Many people who grew up poor may feel the urge to overspend to compensate for feeling deprived as a child or to make it seem like they are breaking the lower-class cycle (even if, in reality, they’re hurting their own finances by doing it).
Similarly, many people who grow up in affluent families feel compelled to spend money to maintain the lifestyle they grew up with even if they don’t have the income to do it.
And regardless of class, there’s a tendency to repeat the bad money habits we observed in our parents as they’re often our only financial role models.
The Fix: If you lacked good financial role models or advice as a kid, seek them out as an adult.
The Problem: Pleasing everybody.
The social critic to capitalism is that it feeds on human’s inherent feelings of anxiety. We are anxious of what other people might say with whatever it is that we say, do, or acquire. Norms make us anxious. In a consumerist society, not consuming is tantamount to not fitting in. As such, many people live according to their presumed expectations of others and try to maintain an image that they think they “should” have.
The Fix: Focus on your goals, rather than your neighbors. When you’re saving money for something that’s important to you, what your neighbors are doing with theirs will seem less important.
The Reason: You are giving into peer pressure.
Whoever’s around you could make or break you. So, keep distance from friends trying to live a Kardashian lifestyle. Imagine shopping with them and they’re picking up stuff you cannot actually afford. I know plenty of women who spend too much money when they are with their friends or colleagues because they’re too insecure, or feel too uncomfortable, to admit they cannot afford it. If the people you hang out with make you feel bad because you cannot afford to eat, shop and vacation where they do, are they really worth going into debt for?
Even well-intentioned friends can have a bad influence on you if they have bad money habits themselves (sometimes without you even being aware of it).
The Fix: Make plans that won’t require a big payout. Meet friends for coffee or a drink, instead of a meal. Go hiking or running in the park. Invite friends over for dinner. And surround yourself with the friends who will support you as you work toward your financial goals. (Seems obvious, we know. But many of us don’t think about it.)
The Reason: You are filling an emotional void.
Ever heard of stress-shopping (i.e. retail therapy)? Or stress-eating? Well, you can’t control many of the events in your life, but you can control your spending and your eating. And those two behaviors can go into overdrive when you’re feeling unhappy or that other parts of your life are out of control.
If you’re feeling sad, stressed or anxious, studies have found that 1) you’re more likely to overspend, and 2) that shopping can actually act as a short-term salve. But it can also trap you in a long-term (and costly) ‘loop of loneliness’.
The Fix: Shopping can be an effective if temporary distraction, but it also keeps you from dealing with your feelings. Instead, look for a solution that will provide lasting relief, whether it’s putting that ‘retail therapy’ money into real therapy, dealing directly with the situation that precipitated the bad feelings, or just taking a walk with a friend. That won’t cost a thing.
The Reason: You cannot say ‘no’.
Happiness researchers have found that spending money on others makes us feel good. But there’s a difference between giving to a cause we believe in, or surprising a friend with flowers, and over-indulging those we care about.
Whether it’s your child’s relentless requests for a new toy or a treat, or your husband’s desire to upgrade to the latest HD television, it can be hard to say no. Why? The reasons can range. But I’ve found that for some, they feel like they’ve failed to some degree if they cannot indulge the people they care about.
The Fix: Give your kids an allowance. And whenever they want to buy something, tell them to buy it using their allowance alone. This will also teach them how to be financially responsible at early age.
The Reason: You do not have defined goals.
Not having a firm understanding of your short-, mid- and long-term financial goals can lead many you to lose sight of what’s most important and give in to spending temptations.
The Fix: Get clear on your goals and what it will take to reach them. Creating a financial plan can seem overwhelming, but it doesn’t have to be. Whether you go the do-it-yourself route or work with a financial professional, the process starts with simply prioritizing and visualizing your goals, writing them down, and thinking about how you’ll feel when you reach them.