Why People Overspend and How to Break the Cycle (2024)

A recent study by the University of Cambridge shows that the foundation of an individual’s money mindsets is formed by age 7. This money script — which is essentially the blueprint for how people spend, save and invest — is typically formed by observing how parents talk about and interact with money. If parents often argue over money, then their kids may develop a negative emotional tie to money. On the other hand, if they watched their parents proudly save up to take the family on a memorable vacation, they may have a more positive emotional tie to money. This may be why some people can balance their savings and spending while others spend everything they have and even more.

Overspending can be a challenging habit to break. Understanding the underlying reasons why people outspend their budgets can be an important first step to taking control of spending:

• Impulse purchases: If you grabbed a candy bar while standing in line at the check-out, or a croissant with your coffee as you were walking to work, you might be making impulse purchases. While these items may seem small when viewed independently, they can and do add up. The urge to buy something unexpected without giving it much thought, may throw off your budget, which could lead to overspending. One way to combat impulse spending is by creating a shopping list and sticking to it.

• Emotional spending: Ever hit the mall for some “retail therapy?” It may bring you a rush and a temporary sense of joy, until you realize how much you’ve spent. Buying to change your mood won’t likely fix things long term. Consider finding alternative activities to help boost your morale and save shopping for another day.

• Peer pressure and social media: Both social media and social pressures may influence spending habits. If you spend money to align with an image or to fit in with others in your peer group, pause and prioritize your well-being.

• Discount buying: Sales make many people overspend. As consumers, people are often enticed by discounts and allow the thrill of capturing the deal drive their spending decisions. If it is not something you planned to buy or need, consider placing it back on the shelf.

• Lack of budgeting: Often, people overspend because they don’t have a clear view of where their money is going. Building a budget may allow you to take care of the essentials such as food, housing, utilities and transportation. Then you can see how much discretionary income you must comfortably spend on items you want or need.

Armed with a better sense of what drives your buying decisions, below are some ideas to help break old patterns to set yourself on a path to financial control and empowerment.

Tips to help curb over-spending

• Use credit cards like debit cards: To help curb overspending and debt accumulation, treat your credit card like a debit card. Make purchases with your credit card only when you know you can pay off the balance at the end of the month to avoid paying interest charges, while still benefitting from the rewards programs most credit cards offer.

• Take the impulse out of impulse buys: Were you just out window shopping until you saw those must-have shoes? To help take the impulse out of the purchase, take the time to pause and reflect before making your purchases. Ask yourself if it’s something you want or need, and whether it fits within your budget.

• Be a smarter shopper: To be a smarter shopper, shop the sales. And if you decide you must have an item right away, do a quick search to check and see if it’s available on sale elsewhere, or if there your store offers discounts. You may be surprised how much you can save.

• Create a spending budget: Save first. A spending budget allows you to set aside money every month for future spending. This will allow you to feel more empowered as you spend the money you have, and not creating more debt.

If you find that you’ve been overspending, you’re not alone. But now that you’re more aware of when you feel the pull to spend, instead, you can find fun ways to be a smarter shopper.

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