Maybe it’s the way technology has advanced or maybe it’s the emotional roller coaster of the last decade, but overspending is a problem for most Americans. In today’s world of digital wallets, one-click purchases, and free shipping, it’s easier than ever to make purchases without ever leaving your couch. That’s great news when you’re sick and want to DoorDash chicken soup, but it can mean bad news for your budget.
Many of us are living paycheck to paycheck (as many as 62% in November 2023 according to a Lending Club report). And yet, as many as 83% of us still regularly overspend. We buy things on credit and rack up debt. We make emotional purchases we can’t afford. We consistently exceed our monthly budgets (if we even have a budget to begin with). Why? The answer is unique for each of us and occasionally complicated.
The Psychology Behind Overspending
We’ve all heard the phrase, “Money can’t buy you happiness” but that doesn’t stop us from making emotionally driven purchases. For many of us, simply thinking about shopping releases a little hit of dopamine—the neurotransmitter that plays a key role in memory, pleasure, and learning. We give in to our desires and we get an intense—if short-lived—feeling of reward.
Here are the most common reasons we overspend:
- Social Pressure. Consumerism and social media drive a lot of our spending habits. It’s not just about “keeping up with the Joneses” it is about self-uncertainty and a desire to feel like we belong. Many of us view our purchases as validation of our status or self-worth.
- Depression and Anxiety. There are countless jokes about retail therapy (“wouldn’t it be nice if retail therapy was covered by health insurance?”) but it is a very real thing. Many of us spend to escape from stress, frustration, and trauma. We distract ourselves from pain and sadness with purchases (both big and small). We soothe our anxieties with items that we hope will make us happier, satisfied, and more confident.
- Lifestyle Creep. The term “lifestyle creep” refers to the pattern of spending more as you earn more. If you get a new job or a new promotion, you may be tempted to treat yourself—and you should. Just be careful not to overindulge. The “creep” happens when you consistently level up on your lifestyle instead of saving or investing that extra cash.
- Addiction. It is hard work to regulate spending, but the task is even more challenging for those with impulse control issues. Compulsive Shopping Disorder, for example, is a behavioral addiction. It is a “disorder characterized by excessive shopping and/or spending that leads to subjective distress and impaired functioning”.
- Credit Miseducation. Many of us use credit cards to make over-budget purchases, but it’s very easy to get in over your head with credit card debt. This is especially true if you are misinformed or simply unaware of how interest rates and billing cycles work.
How to Stop Overspending
To gain control of your finances, you need to educate yourself on your budget, spending patterns, and triggers. Self-awareness is your strongest tool for breaking bad habits and building new, healthier behaviors. Try these tactics to curb overspending in the coming year:
1. Set a Budget
Before you set any goals or make any changes, you need to know what you are working with. Make a spreadsheet or get a notebook and list your income and expenses. Make separate lists of your fixed expenses (those that are necessary and stay the same each month), variable expenses (those that are necessary but change each month), and discretionary expenses (like entertainment, jewelry, and spa visits). If you have never set a budget before, consider a 50/30/20 rule and designate 50% of your income to necessities (like housing, utilities, and insurance), 30% to wants (like takeout, travel, and concert tickets), and 20% for savings. With that 20%, pay off debt or start an emergency fund.
2. Downsize Debt
If you want to stop overspending, avoid using credit cards. Train yourself to believe that if you don’t have the cash for something, you can’t afford it. Next, tackle outstanding debt—especially high-interest credit card debt. Once you have paid down balances, keep your credit utilization low (30% or less). As you save and make continuous on-time payments, your credit score will also rise.
3. Educate Yourself
If you find yourself overwhelmed or confused by your credit card bills and mounting debt, educate yourself with the help of articles, classes, or workshops. A strong understanding of finances will give you the foundation to pay down debt efficiently and manage your money more effectively.
4. Shop Mindfully
If you have ever walked into Target to buy shampoo and walked out with a $157 receipt, you know the danger of impulse shopping. Instead, be mindful of your purchases. Make a shopping list and stick to the list. If you are easily swayed by the colorful displays and seasonal offerings at your favorite shops, order online or use curbside pickup.
5. Avoid the Siren Call of Sales
Have you ever justified buying something because it was “on-sale”? Have you ever purchased something you wouldn’t have otherwise purchased because it was marked down? Remember: If you buy a new blender because it is 30% off, you are still spending that 70%. As frustrating as it might be, stick to your budget. Stick to your list. If you see something you simply can’t resist, add it to your budget for next month.
6. Set Savings Goals
To increase your odds of success, give yourself some small, realistic goals—even if it’s just saving $100 a month. If you are saving just for the sake of saving, you may lose momentum.
7. Delete Saved Payment Information
Technology makes it so easy to purchase without a second thought—especially if we don’t even need to grab our wallet. To curb unruly spending, delete your credit card information from your favorite online shops and your browser. If you have to track down your credit card between “Add to Cart” and “Complete Purchase”, you may think twice about the purchase. When shopping at brick-and-mortar stores, leave your physical cards at home to avoid temptation.