We’ve all been there. We stop by the store to pick up one or two things. Maybe we need shaving cream, or hot dog buns or a new shower curtain. We end up leaving with what we came for…plus a cartful of stuff that we didn’t.
Sure, it’s okay to pick up a few “extras” while you’re at the store to take advantage of a sale or discount. But if you’re overspending more and more, it may be time to take a look at the why behind it.
Why we do it
If you have a tendency to overspend, you’re not alone. Recent studies show that 80% of Americans in debt. While the reasons for debt vary, here are 6 common reasons we overspend. Perhaps you see yourself in some of these.
People tend to overspend on special occasions like birthdays and holidays because we often don’t keep track of just how many of them there are in a year. Add anniversaries, weddings, graduations, plus whatever other special days you celebrate. These costs can add up quick, and you can end up spending more than you bargained for. Tip: A good way to save for special occasions is to set up a special savings account that’s earmarked specifically for holidays or birthdays so they don’t derail your budget.
Now vs. later
Also known as immediate vs. delayed gratification, this can lead to financial woes because we often place extra weight on more immediate rewards than those that seem off in the distant future. For example, you may want to buy a home or new car and know you need to save up for it, but you also want to take a vacation to a tropical island this summer. The more we disregard our longer-term interests in favor of short-term ones, the more likely overspending will be an issue.
Psychologists use the term “mental accounting” to describe the thought process behind dividing money into separate mental “accounts,” such as those for groceries, mortgage/rent, clothes, indulgences, etc. We constrain our spending for some of these accounts, but since expenses are compartmentalized in our minds, we often don’t see the bigger picture. For example, you carry student loan debt and make small payments each month. Your parents give you money for your birthday. The bigger picture would be to use that money to help pay down the balance of your loan, but since you see this as “free money,” you decide to treat yourself to a shopping spree instead.
Shopping allows us to visualize ourselves in a “better” life, where we’re surrounded by nice things. Whether it’s new clothes, or the just-released new version of your favorite video game, or a good book, we all like the thrill of getting something new. Retail therapy is a coping mechanism that some use to deal with life’s ups and downs, where we splurge on things to temporarily lift our mood and distract us from our negative thoughts. Tip: Instead of denying yourself, treat yourself, (but within limits) with money you’ve saved in advance. Stash away a little each paycheck so that you can occasionally buy something if you need a mood boost, without the guilt of wrecking your budget to do so.
Easy access to cash
Many of us are old enough to remember the days when we had to wait for a paper paycheck from our employer, then drive to our bank or credit union, and deposit it. We had to rely on keeping enough cash on hand to cover our spending until our next paycheck, and carefully balance our checkbooks to make sure we didn’t overdraft our accounts. The act of balancing a check book and thinking ahead to how much money we needed on hand involved some planning and simple math. It forced us to think about our spending.
Today, we have access to our accounts 24/7, which is certainly convenient, but can also lead to problems if fast and easy access to funds leads to impulse buys and overspending. On top of that, when we make payments electronically, using online services like Venmo and Paypal, it can sometimes seem like we aren’t “really” spending money.
Fear of Missing Out (FOMO)
Your co-workers are all going out after work for pizza and invite you along. Your friend calls to say the gang’s meeting up for dinner and a movie. Don’t let FOMO derail your spending. We all love to go out and have a good time, but we sometimes have to learn to say no to activities that we can’t afford. Don’t compromise your finances if the activity is not in your budget. Tip: If your friends want to go out to eat at a fancy restaurant, invite them over for dinner instead and ask everyone to bring their favorite dish. Or host a game or movie night or some other cheap activity where you can still enjoy time together without emptying your wallet.
How to help fix it
The first step to curbing overspending is to have a plan. According to retail marketing group POPAI, 76% of the average shopper’s spending decisions are made in store aisles. And 57% of shoppers end up spending more than they’d planned to.
Prep before you shop
To combat the urge to fill your cart, write down ahead of time what you’ll buy and how much you’ll spend. Avoid aisles that don’t have things on your list. When buying groceries, try to avoid the middle aisles, as they are typically the ones with snack foods and expensive processed foods. And never shop hungry! Eat a healthy snack or two before you go.
Stick to a budget
A recent survey found that only 41% of Americans have a household budget and track expenses. That means over half of us have little idea how much we should be spending (and are spending) every month on expense categories like food, gas, clothing and entertainment. Knowing what your actual spending is, how much you can afford, and sticking to a budget, should make it easier to pass up that new pair of shoes in the store window.
Beware the little things
For those of us that do track our expenses, we often overlook the little things. Most of us know what we pay for our mortgage or rent, car payments, cable and other big monthly expenses. But it’s the smaller expenses—take-out lunches, expensive coffee, your morning bagel and shmear—that can really sneak up on your wallet. To get a handle on the small stuff, write down everything you buy for a week, big and small. At the end of the week, you may be surprised at how quickly those seemingly small purchases add up.
Do you tend to have too much month at the end of your money? Need help setting up a budget? Tower’s financial wellness partner Balance has resources that may help.
Resources: Psychology Today, The Balance, Her Money