“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.”
Did you know that over 60% of people, especially millennials, earning over $100,000 per annum are overspending and living paycheck to paycheck?
Some highly skilled immigrants are also guilty. They are called HENRYs — High Earner, Not Rich Yet. Here are 7 reasons why most people are overspending, and how you can avoid it:
Easy access to credit
For most people, this is the biggest reason for overspending. Just take a look in your mailbox and you’ll quickly see why. People are flooded with a credit card, mortgage, auto loan, and refinancing offers on a daily basis.
Don’t jump at every credit offer you receive.
Cash at your fingertips
When you had to rely on keeping enough cash on hand or carefully balance your cheque book each day, the act of spending money meant you had to do a little planning and some simple math. Now, all you have to do is swipe your debit card like you would a credit card and the funds are electronically whisked out of your account.
When you aren’t physically handling money or a cheque for a purchase, it can almost feel as if you aren’t spending money at all. Try using cash to get your spending under control. Cash at hand can be dangerous for your financial health.
Misusing credit cards
Credit cards can be a great tool when used properly. In the early days, these cards typically required that you paid the balance in full each month. This came in handy as you could make purchases without using your own cash and then repay it all at the end of the month. Effectively, this is an interest-free short-term loan.
When used as intended, this can be a powerful financial tool. If not, it can be dangerous as the interest rates are killing.
The card company makes the minimum payment due a very small amount, which means that you can afford to make the payment, but if you continue to just pay the minimum, you’ll end up spending the next 5 or more years paying off that original purchase and spend more on interest than the cost of the original item. That is no way to build wealth.
4.Giving in to temptation
It is so easy to give in to temptation, especially at the mall, restaurants and online shopping. We all need to enjoy life, but it is important to know when to decline that fun activity . It can be easy to simply go out to eat or to the movies and just pay for the evening with your credit card, which if you don’t pay off in full each month means you’ll be paying for that evening for a long time.
If you know that you can’t afford an activity, don’t cave in. And if an item is not on your budget, resist the urge to flash your credit card to pay now and feel the pain later!
5.Spending to feel good
This is another reason why most people overspend. Let’s face it—buying yourself something feels good. Whether it is a new pair of shoes, the hottest new video game, or even a good book—we all enjoy getting something new. There is absolutely nothing wrong with this, as long as you don’t go overboard.
This is where it can pay to set aside a little “fun or splash money” in your budget. Take a few dollars out of each paycheck and tuck it away for times like these. You’ll feel good about your purchase whether you make it with cash or by credit card, but you’ll feel even better when you don’t have to spend the next two years trying to pay it off with 20% interest.
This is when you increase your standard of living to match a rise in discretionary income. You will end up overspending or live paycheck to paycheck when you pursue the expensive lifestyle, without the back-up financial discipline.
You need to understand the psychology of spending.
Not knowing your spending triggers
Not knowing what triggers you to spend could be the root of most of your overspending. It’s easy to spend money without thinking about it; but if you want to save money instead, it can be helpful to also take a closer look at the “why” behind your spending habits. Some common triggers are, your mood, weather, special memory and peer pressure FOMO (Fear of missing out).
Tips on how to stop overspending
- Don’t store your credit card details online.
- Plan purchases with a shopping list.
- Consider why you are pursuing the goal.
- Pay with cash as opposed to cards.
- Track your expenses using a budgeting App or tool.
- Keep budgets for shopping trips.
- Anticipate regret over purchases.
- Set specific saving goals.
- Keep cash specifically in large denomination bills.
- Make money hard to access.