If you admit to being an over-spender you’re not alone. Total debt in the U.S. has reached $11.9 Trillion dollars while the average american household has over $7900 in credit card debt, $10,000 in auto loans, and over $100,000 in mortgage loans. While robust consumer spending is an important driving factor for the U.S. economy, not being able to control personal spending can wreak havoc on your finances.
How do I know if overspending is a problem for me? If you can answer yes to any of the following questions, overspending just may be an issue for you.
- You frequently leave the store with items you didn’t plan on purchasing
- You don’t open your bills when they arrive in the mail
- You bounce checks
- You often see late charges on bills
- You hide spending from your spouse or family
Take a Good Look at Your Spending Habits
Do you know how much you are spending? This may seem like an obvious question but you would be surprised at how many people struggle with that question. Start by making a list of all of your bills and spending for 30 days. By analyzing where you are spending your money you can begin to see patterns and start the process of reigning in spending. Do you make more purchases on or near payday? Do you dine out mostly on the weekends? Seeing your expenditures on paper will reveal which categories present opportunities to reduce spending as well as highlight potential reasons for your over-spending.
Another option for analyzing your spending habits is to use a tool like Discover’s Spend Analyzer that allows you to quickly see where your money is going and help you make smarter spending choices. Whatever method you choose, the important thing is to decide on an option that works best for you and not be afraid to try something new if your first attempt doesn’t work.
Make a Plan
Getting a handle on where your money is going is a key first step in managing your spending. Having a plan for how you are going to tackle overspending is even more important if you hope to reach your financial goals.
Making a plan to cut spending doesn’t have to be complicated, in fact there are several options to simplify the whole process. Most major banks offer free online budgeting software and there are some great Smartphone apps such as Mint that make budgeting a breeze. In fact, most budgeting software automatically categorizes transactions and creates a monthly budget based on your average spending. How cool is that?
Creating a baseline budget and tracking your spending is relatively easy as you just learned. It takes a little more effort to cut spending but the results are well worth it. I always recommend starting with small cuts to discretionary spending like dining out or travel. Simply eliminating one meal out per month and having water with your meals can result in savings of over $500 per year. Once you build confidence that you can find ways to save money without drastically altering your lifestyle, you can tackle more challenging categories like your mortgage or utility bills.
The next step is to take these savings and use them to pay down high interest debt and invest in an education savings or retirement account. A great way to do this is to setup an automatic transfer from your checking account to your bank account before you have a chance to spend it.
Make a Change in Your Spending Habits
So you know you have a problem with spending. You even know exactly where your money is going. The best budgeting software can only identify where you are over-spending, it can’t stop you from making a purchase. In the end, it will be up to you to modify your own spending behavior.
If you are routinely making large purchases on or near paydays, try leaving credit cards at home and use cash instead. Try inviting your friends over for a potluck dinner on a Saturday evening instead of dining out. The sky is the limit when it comes to ways to reduce spending and you may even have a great time in the process.
When you are truly motivated to change your spending habits you will find methods to control spending that work best for you.
Readers: Has overspending ever been an issue for you? What strategies did you use to help stop overspending?