Overspending is a common financial problem that can be solved by combining practical strategies with emotional understanding.

Elizabeth Dunn, who is a professor at the University of British Columbia and chief science officer at Happy Money, says that people need to address the psychological side of money and the financial side. People often carry a lot of baggage and stress around money. So let’s first address the emotions, stress, and other issues we might be dealing with before getting into interest rates.

Overspending is defined as spending more than one’s means. This could be due to an unexpected event such as a job loss or slow changes in financial behavior. A Federal Reserve report from 2020 found that more than one-fourth (or 400) of those surveyed had at least one bill they couldn’t pay that month or were in danger of not being able to pay them.

Other forms of overspending are possible in different families and lifestyles.

Dunn states, “I consider overspending to be spending more than you can afford and where suboptimal spending decisions are making their way in.” “Those purchases are not providing much happiness.”

Why We Overspend

Although every person’s spending habits will be different depending on their circumstances, Shari Greco Reiches, co-founder of Rappaport Reiches Capital Management, Illinois, says that there are some common factors that can lead to overspending.

Lifestyle creep is a condition where people gradually increase their spending, leading to unrecognized overspending. In addition, people who don’t have a clear process for purchasing can find it hard to control their spending.

Greco Reiches said, “You always believe that the next rung will make you happy. And if you don’t identify it early, it could be dangerous. People who are prone to overspending don’t have a decision process. A budget is an initial step.”

Advertisements, media, and social pressure all can contribute to overspending. With phrases like “almost gone” or “two tickets remaining”, marketing strategies aimed at creating a sense of scarcity among consumers. Emails sent by favorite retailers may give consumers the impression they are saving money or taking advantage of a sale. Roadside billboards and other advertising can encourage people to make impulse purchases.

Greco Reiches believes that younger people may feel more pressure to enjoy vacations and dinners out with friends and family because they see other people enjoying these activities on social media platforms such as Instagram.

Greco Reiches explains that many people think spending makes them happy. “But many people find happiness in being true to themselves and their values.”

Strategies to Stop Overspending

Dunn suggests that you should take small steps to address an overspending problem. Making small, achievable changes over time is more likely to be successful in the long term. Setting goals and creating a foundation with an emergency fund and budget may be better than relying solely on willpower.

A 2021 analysis revealed that these financial self-control strategies are effective in helping people limit their spending or increase their savings:

1. A retirement savings projection plan is a good idea.
2. A shopping list can help you plan your purchases.
3. Think about why you are doing it.
4. Instead of using cards, pay with cash.
5. Keep track of weekly savings deposits.
6. Save money using an account with no early withdrawals.
7. Anticipate future regret over purchases.
8. Create and follow budgets for shopping trips.
9. You can set specific savings goals.
10. Keep cash in bills in general.
11. Cash should be kept in large denomination bills.
12. Make money difficult to access.

According to the study, financial failures can have serious consequences. Financial security is a predictor of overall quality and subjective well-being. However, financial stress has been shown to be linked with physical health problems, close relationships issues, and stress in retirement.

These outcomes can be avoided by tracking your spending closely and reflecting on each purchase. Think about why you spent what you did, how you felt about it, and where you spent your money.

“It’s important to be aware of how purchases affect our mood,” Dunn says. “A mindfulness approach can help you get more joy out of your spending.”