Takeaways
- Unregulated spending can wreak havoc on your monthly budget.
- Implementing a budget can help curb excessive spending.
- A spending fast can reduce spending quickly and leave you with good habits.
- Shifting from a spending mindset to a savings mindset takes time.
- Spending on depreciating assets only erodes your overall net worth.
If you review your credit card bill and bank statement at the end of the month and wonder where all your money went, you might have a spending problem. A spending habit is super easy to develop when using credit cards as your primary payment form. You get caught up in the moment, forget to consult your budget (if you have one), and swipe your card.
Why Are You Overspending?
Here’s the deal, everyone overspends at some point. Everyone can get carried away, whether purchasing a big-ticket item (buying your first car or purchasing a house) or less expensive things (work clothes or handbags). But it is essential to bring yourself back to reality and pay your debt or curb your spending in the future to meet your financial goals.
Another flavor of overspending is uncontrolled frivolous binge spending. This overspending is unplanned and unbudgeted. Binge spending can inflict lasting damage to your finances when not accounted for properly. Binge spending can lead to rising credit card debt, late payments, lower credit scores, and delayed savings.
5 Ways to Stop Excessive Spending
Luckily, no matter the degree of spending, there are ways to get your spending back on track. Here are five ways to help you stop spending:
1. Pick A Budget Strategy
There is no faster solution to helping you get your financial house in order than creating a budget. A budget is a listing of your income minus your expenses. Your budget describes all the cash coming into your accounts and prioritizes how you spend that money. Personal finance budgets are made on a monthly and annual basis.
Want to power down a spending habit? Then pick a winning budget strategy that works for you and your lifestyle. There are many different forms of budgets. Here are five budgeting systems that might help you regain control of your spending:
Without a budget to keep you accountable, getting a grip on your finances is almost impossible. Pick a budget that works for you and regain control of your finances. If you are overspending, despite already having a budget, experiment with a different budgeting system. You might need to opt for a more aggressive budgeting system, like the cash envelope system, to mitigate overspending.
2. Try a Spending Fast
Have you ever tried to stop spending, like completely? A spending fast is a complete halt to all non-essential purchases. Depending on your monetary goals, fasts can last for days, weeks, or months.
Smart Money -> 7 Pros to Starting a Spending Fast
As with a regular diet or fast, the point of a spending fast is to detox your financial ecosystem of unwanted and unwarranted expenses. If you can live without it for 30 days, you can probably eliminate it from your diet. There are tremendous benefits from a spending fast, including savings, a renewed sense of confidence, and a perspective on your previous level of hyper-consumption. Implementing a spending fast can decelerate spending in the short-term while giving you the space to implement healthy long-term spending habits.
3. Sell Unused Items
If you have a predisposition to spend too much, chances are you are also spending on items that don’t fall into your “needs” category (see the 50/30/20 budget). This means some things are probably non-essential and can help generate cash to pay your credit card debt or increase your savings.
Look around your apartment or home. Are there items you purchased that you don’t use, don’t need, or don’t want anymore? Look in your closet to see if there are clothes you simply don’t wear. Try selling these pieces on platforms like Meta’s Marketplace to help you create more space in your closet and add cash to your saving account.
4. Avoid Temptation
Write down your spending habits. Practically, this might mean analyzing your credit card and bank statements from the last several months. Look for trends in the data. When did you overspend? Are there consistencies, like time or place? For example, maybe you can’t help yourself when you are with a particular friend or at your favorite store.
Avoid the triggers causing you to overspend. On a fundamental level, this means making sure you have a budget (as discussed above), but it also means distancing yourself from people, places, and things that generate the urge to overspend. This doesn’t mean you can’t hang out with your friends, but it might mean having a tough money conversation with them or declining to join them on their shopping sprees.
5. Choose A Saving Goal
Replacing a spending habit with a savings habit might be one of the fastest ways to turn your finances around. Savings can increase your net worth and financial health. And when you do want to go out on a spending binder, you will have ample cash to cover your purchases.
Financial experts agree everyone needs an emergency fund to hedge against the inevitable unforeseen expense. Your income level should dictate the size of your emergency fund. The higher your income, the bigger your emergency fund should be because the larger your emergency expenses might be.
Beyond saving for an emergency fund, you can focus your energy on converting your spending into saving for a slush fund of 2-3 months’ worth of monthly expenses (for example, if your monthly spend is $3,000, you will need to save $6,000 to $9,000). Growing your slush fund to 6 months of monthly spending gives you ample padding to look for a new job, start your own business, or pursue a new career. Slush funds give maximum flexibility and provide financial relief.
Smart Tip:
Park your emergency fund and slush fund into high-yield savings accounts to earn interest while you sleep. Earning interest income will compound your savings and increase your net worth.
Once your emergency and slush funds are topped off, start investing. Create an online stock brokerage account and start investing in stocks, mutual funds, exchange-traded funds, and other investments to make your wealth grow.
Smart Summary
The first step in controlling your spending is to recognize that it’s an issue. Reining back spending can be done healthily and productively if you follow a stepwise process to get your finances back on track. Spending itself is not an issue, which is why certain budget strategies even allow for 30% of your after-tax spending on personal items. It’s the unbudgeted and unplanned expenses wreaking havoc on your finances. Avoid overspending to get back on the path to financial success.
