Money is an integral part of society. It can significantly impact one’s life. It gives those who have it the freedom to live as they choose. It serves as a lifeline for survival. However, spending money, especially when there’s little of it, can cause stress. People may have anxiety when there is an uncertain outlook on their financial status. They may stress because they are guilty of overspending.
Financial stress is something which plagues many people. The American Psychological Association (APA) reports that 65 percent of the population deal with financial issues.
Another survey found that insufficient emergency savings were the primary reason for the participants’ mental health decline. The survey found that 70 percent of respondents reported feeling stressed.
Financial stress can have severe consequences. It can cause someone to deal with mental health issues. They can feel anxious and depressed simply by thinking of ways to make and save money.
You can overcome these obstacles by understanding the reasons behind overspending and learning how to manage it effectively.
Spending money: Is it a bad thing?
There are various ways to look at spending. On the one hand, since all goods and services cost money, it is necessary to spend in order to survive. Therefore, spending money isn’t always harmful, especially if it aligns with one’s values and priorities.
However, some people feel guilty about spending if they know they are spending beyond their means.
Consider this scenario: Your office mates ask you to eat out for lunch when you usually eat a packed lunch. You know eating out is more than you can afford. However, because you have FOMO, or fear of missing out, you oblige.
It may seem like a simple matter, but it encourages spending. These may be small expenses, but when added up, they can significantly impact one’s financial decisions.
Factors Contributing to Spending Habits
Why are people prone to spend beyond their means? Here is a closer look at some factors.
Emotional spending and impulse buying are two psychological factors contributing to overspending.
Emotional spending is when you buy something to make yourself feel better. You let your emotions overrule what you think is right. Such behavior is typical when you’re feeling down. Impulse buying is when you buy something on a whim without thinking it through. This behavior can happen when shopping or browsing online and seeing something you like.
Consumerism is another psychological factor that marketers use to influence spending habits. They can run ads and campaigns to project what a “good life” looks like. This tactic works since people often try to keep up with these standards by spending more money.
One obvious example is the trend “#TikTokMadeMeBuyIt.” As of writing, this hashtag already has 8.1 billion views. In its report, TikTok shared that 92 percent of its users took action after watching a TikTok, and 67 percent bought a product even if it was unplanned.
Adolescents are vulnerable to the effects of opulent hauls, shopping challenges, and extravagant displays of affluence in TikTok videos. Social media platforms, such as Instagram, contribute to the widespread fascination with the “add to cart” mentality. This mindset is fueled by consumerism. It’s a behavior notable for an excessive desire for material possessions and services. For some, consumerism becomes a means to display one’s social status and wealth to others.
Society can also dictate one’s spending habits; for instance, the widespread culture of consumerism and the constant exposure to social media content. These posts showcase lavish lifestyles and can create a sense of “keeping up with the Joneses.” This often leads to a desire to own the latest products, wear trendy clothes, or go on expensive vacations to fit in or maintain a particular image.
Companies focused on advertising and marketing strategies create a sense of urgency around their products, leading to impulsive buying decisions. There is pressure to conform to societal standards of success, beauty, and status, which can also contribute to overspending. Some may be urged to buy products to meet these standards, even outside their budget.
Ultimately, societal pressures can cause people to prioritize material possessions and appearances over their financial well-being. It’s important to recognize these pressures and develop a healthy relationship with money by setting budgets and prioritizing needs over wants. People should understand that material possessions do not solely determine success and happiness.
Lack of financial literacy
Financial literacy refers to the knowledge one needs to make informed and effective personal finance decisions. Sadly, many people still lack this fundamental knowledge, leading to financial problems and setbacks. Cashflow management becomes a significant hurdle when individuals must know how much money is coming in and going out. With a clear understanding of their cash flow, people may be able to meet their financial obligations and avoid falling into debt.
This knowledge gap can contribute to financial difficulties in several ways. For starters, it’s challenging to track expenses when there’s minimal to no understanding of the basics of budgeting.
This may also lead to people being more vulnerable to financial scams and fraud. Since they lack oversight, they may not recognize warning signs or make informed investment decisions. In 2021, consumers lost over $5.8 billion to fraud, according to a Federal Trade Commission report. Sadly, these numbers are unlikely to see a decline.
The financial literacy gap is an issue with far-reaching consequences.
Economic factors also determine how much people spend and how often they overspend. Higher-income people have more money to spare without feeling the immediate financial impact.
Credit availability is another economic factor that can contribute to overspending. The higher their credit limit, the more “allowance” they spend. However, only some people realize using their credit cards is not the same as spending their own money. Rather, using a credit card incurs a debt which must then be repaid.
Notably, most people’s salaries need to catch up with inflation rates. This means they must spend more to maintain their current standard of living.
Family and cultural influences
In many cultures, there is a strong emphasis on family and community values. Often, these values make people feel pressured to conform and meet certain expectations. This may include spending money on maintaining a certain lifestyle.
Familial influences can also contribute to overspending by shaping an individual’s attitudes and behaviors toward money. For example, if someone grew up in a family with a lot of emphasis on material possessions, they may equate material possessions with happiness and success. Eventually, this can lead to a desire to overspend to acquire those possessions.
The same is true for cultural influences. For instance, in some cultures, a stigma may be associated with being frugal or not spending enough money. This practice encourages individuals to overspend to avoid social disapproval.
Tips for Curbing Overspending
Do you spend too much every month, leaving you with little or no savings? Overspending can be a tough habit to break. But you can take these steps to get your finances back on track.
Determine your spending triggers
The first step in avoiding overspending is understanding what triggers your spending habits. Common triggers include emotions like stress, anxiety, and boredom. For example, if you shop online whenever you feel stressed, then stress triggers your spending. Other triggers include social situations, such as going out with friends or specific stores or brands.
A lot of people resort to retail therapy to address their emotions. However, these are temporary solutions that have long-term consequences.
To identify your spending triggers, track your spending habits and look for patterns. Keep a journal of your spending for a week or two and write down what led you to make each purchase. This can help you understand what leads you to overspend and how to avoid those triggers in the future.
Once you’ve identified your triggers, you can take steps to avoid or manage them. For example, if stress is your trigger, try relaxation techniques such as meditation or yoga instead of shopping.
Create a budget
A budget lets you track income and expenses. A monthly spending plan will tell you exactly how much money you must spend each month. It also encourages you to prioritize saving money for your financial goals.
To create a budget, start by listing all your sources of income, including your salary and other side hustles. Set a fixed amount of your take-home pay for your savings. Then list all your monthly expenses, including mortgage, utilities, groceries, transportation, and any other costs you have. Subtract all these from your income. What is left is what you can spend each month.
Sticking to a budget can be challenging, but some tips can help. One effective technique is to use the envelope method. You allocate a certain amount of cash to each category in your budget and put it in an envelope. If the money runs out, you can’t spend any more in that category until the next month.
Another tip is to automate your savings. Set up automatic transfers from checking account to savings account on payday. That way, you can fight the temptation of spending the money supposed to go to savings.
You can use a budgeting app or plot cash flow on a spreadsheet to track your expenses and ensure you stay within your budget.
Practice mindful spending
Mindful spending is the practice of being conscious and intentional with your spending. It involves thinking about your purchases before you make them and asking yourself if they align with your values and priorities. It can help you avoid impulse purchases and make more thoughtful decisions about your money.
Planning what you will buy gives you a better idea of your finances. You also get rid of feelings of guilt because you know your spending is part of the budget and plan. It can help you reach your financial goals and avoid overspending.
To practice mindful spending, try implementing a waiting period before purchasing. For example, wait 24 hours before buying a certain amount. During that waiting period, consider whether the item is something you need or want.
Find alternatives to spending
Finding alternatives to spending can also help you curb overspending. For example, you could have a potluck dinner at home instead of eating with friends. Rather than buy new clothes, you could try a clothing swap with friends. A movie night at home is more convenient and cost-effective than at a movie house.
These techniques help instill the practice of saving money while allowing you to enjoy the things you love to do. These practices will enable you to explore new hobbies or activities that don’t require spending money.
Manage credit card use
People tend to overspend when relying on credit cards. They may think their credit limit equals spending power, leading them to overspend and accrue interest charges. However, there are benefits to using credit cards, such as building a credit history and earning rewards points.
This is where wise credit card use and financial planning come in. Pay your balance in full monthly, avoid cash advances, and keep your credit utilization low. You can also use a debit card for everyday expenses to avoid accruing debt. When you use your credit card wisely, you can take advantage of perks and rewards.
Seek professional help
If you struggle to keep your finances in check, ask for help. Financial planners and therapists can help you take control of your money and develop healthy spending habits. They can give you a short-term and long-term outlook on your financial status.
Financial planners, accountants, and advisors have specialized knowledge and expertise in managing money and finances. They can help you understand complex financial concepts, create a budget, and develop a financial plan. They can make one that aligns with your goals and values.
They can also offer objective advice and guidance. They can provide unbiased feedback, help you identify blind spots, and make decisions in your best interest. Plus, working with an expert allows you to become accountable.
You can better understand your financial situation, identify areas where you can improve, and create a plan that matches your goals and values. Over time, this can help you achieve better financial stability, security, and peace of mind.
Turn Financial Guilt Into Financial Wellness
Overspending can lead to financial stress, debt, and possible bankruptcy if action isn’t taken. But there’s always a solution. Sometimes, it’s all about having a money mindset. This means having a better understanding of your current financial status. You have control of your finances and avoid overspending.
Remember, positive changes can make a big difference in the long run, no matter how small they may seem.
Featured Image Credit: Andrew Piacquadio; Pexels: Thank You!