How to Fix Your Overspending Habit
March 30th, 2018 by Anchor Bay Capital's Investment Team
Are you trapped in a cycle of overspending? Have you developed an addiction to buying on credit that you cannot seem to break even though you are filled with guilt and regret each time you see your statement? On top of it all, do you find it impossible to save for retirement or a rainy day? Overspending has become a modern day addiction and is at the heart of the matter for many people suffering from credit card debt. Unfortunately, we live in a society which promotes living above our means, with easy access to credit cards, revolving lines of credit and buy-now, pay-later plans. If you are ready to break an overspending habit, here are some ideas that can help:
FOCUS ON 1 NUMBER
Budgeting is difficult for most people to stick with. The process is further complicated in our modern lives because money moves so quickly that we don’t always consider every transaction. To make budgeting simpler, I often recommend focusing on one budget number. This one number is your monthly amount for lifestyle spending. To figure out your one number follow these steps:
- Start with your monthly net income amount
- Determine what amount you need for essential expenses and subtract from net income
- Determine what amount you need to pay yourself for your future goals (savings) and subtract from net income
- The amount left over is your lifestyle spending number
I typically recommend the 50/30/20 method. 50% of net income should be essential expenses, 20% should be savings for the future, and 30% should be lifestyle spending. By focusing on this one number, you can match your spending to what really matters to you. Most likely you will still have to consider tradeoffs when spending and plan ahead for the month, however you don’t have to look at a budget for each type of discretionary expense.
WAYS TO REDUCE EXCESSIVE SPENDING
Start with reviewing your spending transactions for the last 3 months. Where do you overspend? What outlays are most important and which can wait? Here are a few ideas for saving money:
- Book/Magazine subscriptions: Start using the library. Did you know many public libraries allow you to check out eBooks and audiobooks for your Kindle now? No need to buy that new book for book club. Go check it out and save some money!
- Bonus: The library is a great place to check out new release movies for free
- Gym memberships: Consider your motives for the gym. Is it social or did you sign up to reach your New Year’s goals and have fallen out of the habit after a few months? If you like to work out on your own, there is so much free workout content online. Save some YouTube videos, create your schedule and go to work!
- Bonus: Look for gyms or yoga studios that allow you to pay per session. This way you can control your costs based on how often you go.
- Alcohol: Consider how much of your dining out bill is attributed to drinks. Often the cost of one drink at a restaurant is similar to a case or bottle at the grocery store. This is a great area to be conscious and reduce spending. This can also be applied to soda/soft drinks. Don’t order a drink with every meal.
- Insurance: Are you getting all of the discounts you can for your insurance policies? Schedule a meeting with your agent and go with a purpose. Ask to be educated on your deductibles and evaluate the liability of increasing deductibles to lower monthly costs.
- Travel: If you are planning a trip or vacation, you should always get discounts. You can subscribe to discount travel newsletters like Travelzoo to stay up to date on deals. Try to book destinations in off peak seasons. It really pays to shop around.
- Bonus: Remember to plan your meals on a vacation. Do your research, find out where you want to eat and what options you have to buy groceries. You will tend to spend more money if you just wait to see what there is to eat when you get there.
- Service fees: Consider fees related to banking, credit cards, concierge services, etc. Take care of yourself and cut fees that are unnecessary.
These are a few examples. You see the point. Taking the time to really evaluate if your money is flowing to your priorities can make a huge difference for your finances and your well-being. Discipline yourself. You will be surprised at how small changes can add up to savings.
You become what you believe, not what you think or what you want. – Oprah
Visualization is key to any goal. If you want to reduce spending then start seeing yourself as a money savvy, abundant person. There are many tools that you can use to keep your vision in front of you: a journal, vision board, sticky notes, etc. The key is to believe in yourself and start talking about it.
Make a resolution today that you will accomplish your financial goals. Write it down and tell your family and close friends about it. They will support you. Who knows, they could well be facing the same money anxieties themselves and you can support each other.
BOTTOM LINE
You can make changes right now to tackle your overspending habits and get your financial life on track.
Good budgeting requires objectivity, analysis and discipline. Only by taking the time to get organized can you control your expenses and set a correct spending level.