Reasons for overspending and how to stop in 10 steps • Benzinga

Building long-term financial health is fundamental: spend less than you earn, accumulate savings, and set short- and long-term financial goals. But overspending can derail even the best intentions. While some people will tell you to cut back on takeout coffee or avocado toast, overspending also happens on bigger expenses, like a home improvement or vacation.

In many cases, emotional and psychological roots are to blame for overspending, which you may need to address. Whatever the reasons, with a clear plan in place, you can take steps to reduce your spending this week and enjoy the financial freedom you will develop.

According to the Oxford English Dictionary, overspending is simply spending more than the amount planned or allocated. While everyone overspends from time to time, overspending on a regular basis can hurt personal finances and mental health.

Big expenses can have immediate consequences, but even small amounts add up. An extra $10 a month might not seem like a big deal, but it adds up over time. That’s $120 a year, which, if invested with an 8% return, could mean $6,000 more in 20 years. Every little gesture counts.

Many people look outside of themselves to feel better. This can lead to overspending. There are deep psychological reasons for overspending.

Research confirms the psychological roots of overspending on “retail therapy.” The Journal of Consumer Psychology found that shopping immediately makes people happier, and choosing to buy something reduces lingering sadness.

Similarly, a study published in Psychological Science found that people were willing to pay up to 30% more for a product when they were sad than when they were in a neutral mood. Here is an overview of other common reasons for overspending:

Many people have trouble controlling their impulses when it comes to spending money. They may feel a sudden urge to buy something and give in to that urge without fully considering the consequences. Instead of jumping on the item, consider putting it in your mental basket and enjoying it. If you’re still thinking about it a week later, consider buying it if it fits your budget.

People often use shopping and spending to cope with negative emotions such as stress, anxiety, or depression. This can lead to spending to temporarily feel better, and research supports this. But there are other research-backed ways to deal with difficult emotions that won’t hurt your budget, including exercise, meditation, and spending time with loved ones.

People may spend too much trying to stay in touch with friends or peers who have higher incomes or different lifestyles. Remember that rich people may not look “rich” and there is no need to follow other people’s lifestyles. Instead, surround yourself with friends and family members who can help you achieve your financial goals.

Companies use advertising and marketing to create desire for their products and persuade people to buy them, even if they don’t really need them. With targeted online ads, everyone is bombarded with more ads than ever. Look at a pair of shoes online and suddenly ads are popping up everywhere. While advertisers will continue to show you advertisements, you can ignore them or at least consider the value the item will or will not add to your life.

Some people see shopping and spending as a reward for hard work or getting through a tough situation, which can lead to overspending. While it’s okay in moderation, build a reward into your budget to avoid overspending.

Some people may overspend because they don’t understand basic financial concepts like budgeting, saving, and investing. Learning about savings accounts and investment tools can lead to more solid financial choices.

Several cognitive biases can lead to overspending, such as availability bias, where people make decisions based on what is readily available. For example, you might buy an expensive bathing suit on vacation because you forgot yours at home or pay an extra $100 for a piece of furniture at a local store.

Another dangerous cognitive bias is the sunk cost fallacy. Many people continue to invest in something even if it isn’t worth it, like a car that needs repairs that are worth more than its value. One of the most important lessons of financial literacy is this: sunk costs – what you’ve already spent – shouldn’t be factored into current decision-making. Instead, cut your losses and move on.

Finally, through the status quo, where people would rather stick with the status quo than make changes, can be hard to shake. It takes determination to make meaningful changes, even if small changes add up to long-term results.

The consequences of overspending are widespread. Although the immediate effects are financial – reduced savings and increased debt – it can lead to other serious long-term consequences. Debt and overspending can increase stress, guilt and anxiety and lead to relationship problems.

On the other hand, the benefits of saving money bring significant benefits including financial stability, freedom, and peace of mind. By controlling spending, you get one step closer to financial freedom.

If you’re ready to take control of your spending, here are the steps to take.

Creating a budget can help you understand where your money is going and where you can cut spending. If you haven’t set a budget yet, track your monthly expenses and consider a budgeting app that syncs with credit cards to get a clear financial picture.

Many budgeting experts suggest withdrawing money for monthly expenses. Put the money in envelopes marked by category for the week or month. Using cash instead of credit or debit cards can help you be more careful with your spending.

If you see something you want to buy, wait at least 24 hours before making the purchase. This can help you determine if it’s a necessary purchase or an impulse purchase. For purchases like clothing or entertainment, consider waiting a full week and planning it into your budget.

It’s important to find something else that fills that emotional need to get away from overspending. Identify what triggers your impulse spending, such as stress, boredom, or sadness, and find other ways to deal with those triggers and meet those needs.

Setting financial goals can help you focus on what’s important and motivate you to save money. The sense of accomplishment that comes from finding and achieving financial goals can increase satisfaction.

It’s easier to avoid overspending if you don’t put yourself in a position of temptation. Avoid stores or websites where you tend to overspend, and unsubscribe from marketing emails that pressure you to buy things you don’t need.

When you have to go shopping, make a list before you go to the store and stick to it. This can help you avoid impulse purchases at the grocery store or other places you visit regularly.

Focus on what you already have and practice gratitude for what you have rather than constantly looking for more. Before buying something new, consider using what you already have that you like or borrowing something from a friend. Take advantage of the wealth you already have in your life and you may find that you already have enough.

Most communities offer many free activities. Find free activities you can do with friends and family rather than spending money on entertainment. Consider outdoor activities in parks or nature preserves, free museum days, backyard potlucks and movie nights.

Ask for help. Consider seeking help from a financial planner, therapist or support group to help you develop healthier financial habits. Surround yourself with people who will help you work and achieve your financial goals.

Spending reduction is a gradual process. Set yourself up for success with small goals. Focus on both cutting expenses and filling your life with other things. If you only focus on take-out shopping, it can create a bigger void. Instead, add new activities, relationships, and pleasure opportunities that can fulfill emotional needs.

And if it’s within your budget, give yourself a discretionary spending amount so you can always choose something to buy each month. Remember that with determination, you will reap the rewards of better financial health, less stress and greater financial freedom.