Overspending is a sign that there’s something missing in your life. People have a need to compensate one area of their life they’re lacking at with another. Some compensate through food, smoking, or playing video games. Other people compensate by spending as much money as they can.
I’ve been there before. When I was first started the financial independence, retire early journey, it was brutal. I lived paycheck to paycheck. The vast majority of the money had to go to my 401k and investments because I wanted to get out of the rat race as quickly as I possibly could. I didn’t see myself working over the long term.
However, the drawback to when I did that was that I felt powerless. I felt like I was living with just barely enough to scrape by. Even though I was progressing and building my wealth, it still frustrated me. I felt powerless with someone else controlling my time and what I do on a daily basis.
That’s when I had the most urge to go out and spend. Spend money so that I can feel powerful again. Spend money so that I don’t feel so beholden to someone else. I did great at fighting the urges but there were months when I couldn’t help it and splurged a lot of money.
Overspending is not your fault. It’s when you feel like you have to fill a hole in your life that you look for other avenues to make you feel whole that it becomes a problem. I know because I’ve gone through periods of that where I needed to do spend a lot of money otherwise my mood would be ruined.
When you succumb to these desires, it can be a very slipper slope, be careful.
What is Overspending?
Overspending is when we spend more money than what we budgeted for, wanted to, or need to. The most classic case of overspending is when we go to the grocery store hungry. We always seem to come out with more snacks than what we originally planned to purchase. Or it can be an impulse purchase.
The more complex forms of overspending is when you are sitting on the couch and suddenly making $100+ purchases on clothing. When you have clothes that perfectly fit you and are nowhere near out of style. It’s when you go to the mall for a sweatshirt and come out buying a suit in case for “that occasion”.
“That occasion” never seems to come, does it? A very easy way to tell if you are overspending is to check your budget quite often. You set your budget when you are not influenced by outside factors. When you are sitting in front of the computer or sitting at a desk is when you set your budget.
Not when emotions influence you but when you are at resting stage. The grocery store, restaurant, or the mall are classic modern warfare grounds where businesses are trying to get you to part with your money. As hard as they can. And they are excellent at doing so.
So then when you see a considerable difference between your budget and your actual monthly spending is when you know if you are overspending or not. There’s no way you can cheat on finding out the answer, as well. Why? Your budget is something that is written down, not something that’s perfectly stored in your memory.
Practice brutal honesty when finding out the answer because the only one hurting from your lies is you.
Why Are We Overspending?
While everyone’s situations are unique there are common influencing factors that lead you to overspending. They’re interconnected somehow, someway. One common theme of overspending is when you give that social share button a good slap! Your friends could better their budget if you just simply do a free thing like sharing this article.
So with that said, let’s go over the common psychological themes!
1) Fill a Hole in Your Life
It could be many different holes in your life that’s causing you to overspend. You could be lonely so spending too much money is one way to pass the time and tell yourself that you’re worth it. Or it could be because you are jealous at seeing other people’s successes and think you need to show off as well.
The goal is to be rich, not to look rich. It’s not a good idea to “one-up” someone else because it’s a mutually destructive action to do so. The only ones who win are the companies that get a big extra paycheck at the end of it all. Whatever the holes in your life is, it’s causing you to pull out your wallet and buy things you don’t need or want.
As humans, we have a very wide range and breadth of wants and needs to fill the hole. It’s never a one size fits all. Find whatever you feel like you are lacking and/or need compensation for. Then instead of using money as a coping mechanism, directly tackle the problem and come out of it ahead.
2) Numb the Pain of Working
It’s painful to be a cog in the machine. Employees in the United States generally do not have any sort of meaningful rights that makes the workplace a good thing. We put in 40+ hours per week, which is more than a third of our working weekdays. It’s painful to have to sleep based on someone else’s demands.
We overspend because we have to numb the pain. It acts as anesthesia for our daily mundane lives as a worker bee that acts as a metaphorical surgery in our lives. I acknowledge that work is a very painful process. It’s not something that we’re meant to do as humans for 40+ years, as society haves you believe.
We’re not built to sit for the vast majority of our lives. We are created to be active, doing things that gives us purpose, fulfillment, and meaning. Overspending is a way to escape the harsh reality when 90% of people don’t get to live out their hopes and dreams.
Instead of using money as anesthesia, it’s time to start using your other free time to build out your dreams. If you won’t, you will end up full of regrets.
3) “We Deserve it” Mentality
I get it. We work hard during the workday, what’s the point of working hard if we can’t spend any of the fruits of our labor? While that is true, it’s a very “live in the moment now” mentality. This mentality causes you to spend money by sacrificing your future. You’re borrowing money against your future to fulfill today.
The future is going to come here, whether you like it or not. Therefore, if it’s inevitably going to come, why would you try to do anything to ruin it? You do deserve to splurge once in a while. But constantly spending more money than you should is not the way to go.
If you don’t want to feel guilty by treating yourself now and then, it’s a good idea to have a “fun budget” listed in your budget. This is for when you can spend money on anything and everything that your heart desires. I have about $10,000 worth of fun money leftover to spend in 2021 because I keep pushing it off to the upcoming month.
However, the important point is that you can treat yourself now and then without breaking the bank.
4) Social Pressure
As people, we have what are called, “feelings”. And with feelings come emotions such as jealousy and pressure. When we see our friends buy a brand new Tesla or buy a half a million dollar house, we feel happy for them. However, we then start to ask ourselves, “why can’t I have that too?”
It’s a classic cycle. We feel that way without really even knowing whether they can afford to buy those things or not. Overspending is caused by our own feelings of inadequacy and because we are social creatures, we can’t help but compare ourselves to others. Even when we know we shouldn’t.
This is the most important time to recognize that you need to get rid of your pride. Your pride and ego are not going to get anywhere except help make you feel better. It’s not the right way to go. One of my friends bought a brand new Tesla and it’s one of the nicest and cleanest cars I’ve ever ridden on.
I would be lying if I said I didn’t want that too. It’s natural to feel the social pressure that we need to break out of.
How to Stop Overspending
So now that we know what causes overspending, we have to figure out how to fight and stop it.
1) Create a Budget
The number one antidote to excessive spending is to create a budget. This is your weapon that you will fight in the battleground with. It’s a set amount that you shouldn’t deviate or change from no matter where you are out and about. Be stubbornly inflexible when it comes to budgets.
That doesn’t mean that you’re not going to slip up and follow the budget to perfection. That does mean that you should try your absolute hardest to guard your spending within the confines of your limit that you set for yourself. Budgets are the roadmaps to where you should take your finances to the next level.
I have a simple ~$1,100 a month budget, excluding rent, that’s helped me serve as a huge guideline. With the coronavirus pandemic, the budget actually dropped to something like $800 a month. However, I know one day, I’m going to have $3,000 a month budgets soon.
I’m a big fan of sacrificing today for a better tomorrow.
2) Stop Overspending Quietly
Don’t tell others you’re going to stop overspending. Just actually go out and do it. When we tell others our goals, we are less likely to actually achieve it. It’s a psychological phenomenon. When we tell others we’re going to do something, it already feels like we achieved it.
Therefore, people don’t put in as much effort as they need to in order to be successful. If you want to stop spending excessively, just don’t spend excessively. There’s no need to tell anyone else about your goals and plans because if you do, you already lost.
Show others that you’re going to do it instead of just saying it. I am very careful of talking about my goals. Every New Years’ Resolution I told other people to, I never achieved for that year. It all has to do with me talking about it, which was my greatest mistake and downfall.
3) Automate Expenses, Savings, and Investments
When you take emotions out of the equation for overspending, then you are on your way to greatness. Too many times, we do things we shouldn’t not because of the logical side of our brain but because of our emotional side. When you automate your finances, then your emotions are literally out of the equation.
Your expenses should be run on Autopay and autopilot. Your 401k investments should automatically be going to a broad market based index fund. Credit card bills should be on Autopay so you don’t mess with it. Hands free personal finance is the best kind of personal finance.
I minimally touch my finances on a month to month basis. Although I review them quite frequently throughout the month and weeks, I rarely actually do anything with it. I rest easy knowing that the internet provided opportunities for automation so that I don’t have to manually deal with any of it.
4) Clear Your Mind of Stresses
Stresses doesn’t just mean bad emotions. Stress means emotions that make you feel high, one way or the other. It makes you feel nervous and an overflow of emotions that you otherwise won’t have when you are in homeostasis. People are very great at emotionally manipulating you.
I’ve seen that with my own two eyes. People know how to use their emotions against you, or at the very least, use it for their own benefit. They know once they make you feel something, anything at all, then they are on their way to getting you where they want you to be.
Overspending is not because of your logical brain side. It’s because of your emotional brain side, when you feel the need to spend money to the point of excess. Once you tame and shut down this part of the brain that controls the spending decisions, you are on the path to winning.
5) Stop Paying Attention to Others
Whether you neighbor gets a new car, it literally doesn’t matter. Stop caring about it. Whether they have a new car or not has absolutely zero impact to you. Actually, the argument is even that it helps you because they’re helping pump up the economy! Don’t say things like, “why can’t I have nice things too?”.
Nice things should not be defined by material things. Intangible things are worth way more than material physical things. Things such as freedom, health, and peace of mind are worth their weight in gold. One of my friends bought a $300,000 townhome recently in a great part of town.
I’m not the slightest bit jealous or feel the need to buy another property to compete against or with him. I’m fine putting my money in the stock market and letting my money do the work for me that way. No need to take on yet another active income generating activities by getting my feet wet in real estate.
Overspending is a Disease
The frugality disease is when you don’t spend money on anything, even if you need to. Things such as hospital bills, medical attention, transportation, and the like are necessary things that we all need to have. The other side of the frugality disease is the overspending disease. It’s when you spend excessive money on unnecessary things.
It’s not a diagnosable term yet but that doesn’t take away the importance. If you want to spend more money, make more money. For every dollar you make, if you spend 60 – 80 cents of it, then that’s a good rule of thumb. However, some people spend 99%, even more than a 100% of it. They require debt to finance their lifestyle.
These are the people who have a dying need and desperate need to compensate one area of their life. The bad thing is, is that they don’t even know it. Our brains don’t fix our problems in a direct way. We do indirect things like compensating one area for another, misdirecting our anger at someone else, and the like.
Therefore, it’s time to take a very good look at yourself and be honest. Overspending is not going to break you today or in a single month. It’s a leaky bucket that will destroy you before you even know it, by the end of it all. The antidote to excessive spending is to accumulate assets that pay you.
When your money pays you on top of your day job, then that is called winning both ways. One day, your assets are going to pay you more than what your employer pays you. That is called “independence” and the principle on what America was founded upon. It’s when you dictate the terms instead of the other way around.
