Personal overspending is when you spend more money than you earn. While there can be months where your expenses exceed your monthly income that does not necessarily mean you are overspending. Because it is offset by months where you spend less than you earn.
In other words, your income does not support your life-style. It doesn’t have to be thousands of dollars a year, it can even be smaller weekly amounts of $20 that add up to $1,040/year.
Symptoms of overspending
Almost everyone can recognize when they have a personal overspending problem. It’s clues like constantly checking your bank balance and seeing how little there is in your account. You know your paycheck barely covers or doesn’t cover your expenses and you are living paycheck-to-paycheck.
However, in case you are unsure, here is a list of symptoms of overspending:
- Paying overdraft fees
- Frequently using your overdraft protection on your checking account
- Unable to pay the outstanding balance of your overdraft protection
- Carrying monthly credit balances
- Only paying the minimum towards your credit card balances
- Your credit card balances are increasing
- Opening new credit cards because you have maxed out or close to maxing out your credit on the ones you have
- Opening new credit cards to transfer balances
- Using a credit card to pay for everyday expenses because you don’t have sufficient funds to use your debt card
- Your student loans are in deferment or forbearance
- Failing behind in paying your monthly fixed expenses, such as rent, cellphone, cable/internet, utilities.
If you say yes to 2 or more, then you likely have an overspending problem. There all sorts of reasons as to why we overspend. It could also mean you are not earning sufficient income to support yourself and your family based upon where you live.
Top three overspending categories
To have the largest impact on overspending, you may need to tackle the largest expenses in your monthly spending. Here are the top three expenses:
Whether you own or rent, housing is usually the largest monthly obligation. This is the hardest to address and to change because where you live is an emotional choice as well financial. And moving is costly. For these reasons, consider other solutions first before deciding on moving, unless your monthly rent/mortgage is 50% or more of your take-home pay.
Food – grocery stores, take-out, and prepared foods
This is not a discussion about how much you will save if you stopped buying your morning coffee. While it can save some money, it’s likely not the cause of your overspending for food.
Nonetheless, if you buy your morning coffee and breakfast and lunch and an afternoon snack, and then order take-out for dinner, you will be overspending. Plan ahead by bringing your breakfast and lunch with you during the workweek, it will significantly reduce your food costs.
Also, do not be over-ambitious at the grocery store. You may buy ingredients you intend to prepare for dinner and then you are too tired to cook.
It’s knowing what your family will eat in the next few days so that you don’t have waste. On average we throw away hundreds of dollars a year in food waste. How many times have you bought fresh fruit and vegetables, and then they sit in the refrigerator or kitchen counter until they are inedible and you must throw out?
Between better food planning and more careful purchasing at the grocery store, families can save hundreds of dollars every month. If it is feasible, consider shopping more frequently and buying smaller quantities.
Transportation includes the car or cars are you driving as well as commuting expenses, ride-sharing, tolls, parking, automobile maintenance, and insurance.
While leasing a car seems like a good choice, purchasing a car is a better financial long-term solution. Why? If you lease, you will always have a car payment as long as you drive. Every month of every year it will be a drag on your budget.
Picking the right make, model, and year is the key to affordability. It’s not caring what others think about what you are driving. It’s choosing a used vehicle. In the book, The Millionaire Next Door, the subjects of the book spent a lot time analyzing car purchases and did not believe in buying new cars. Plus, none of them drove exotic cars or brand-new cars nor did they lease.
Ride-sharing apps may appear to be inexpensive choices for transportation, yet these charges can be causing overspending. Review your credit card statements and bank accounts attached to these companies. How much are spending monthly and what would you do if these services were not available? Are the options less expensive?
Commit to Small changes
Addressing the top three expenses can make the largest difference in reducing your personal overspending. However, you should not overlook making smaller changes. Changes that can last you a life-time.
Here are few ways to give you the freedom to make small purchases without overspending or blowing your budget.
Using cash has fallen out of favor, however, it is the best way to purchase if you are trying to stop overspending. Our minds do not process the payments made by debit and credit cards the same way when cash is used. Spending cash is sticky in our brains. Besides, cash is physically limited and once you run out, you don’t have any more to spend.
Use a prepaid credit card
For those that do not want to carry cash or use it in conjunction with cash. Decide how much a week or month you can afford to spend on anything extra. Again, once the balance is zero, you won’t have anything more to spend.
Separate fun/wants bank account
Transfer on a regular basis into a different bank account an amount that you will allow yourself to spend. Use this account with a debit card or use an ATM to take out cash.
Personal overspending is spending more money than you take-in. It does not have to be every month. It does mean over many months, the amount you spend should not exceed the amount you take-in.
To make the largest impact on reversing overspending is change where you live, reduce food and transportation costs. While these top three expenses can make the most difference, don’t overlook small spending.