Spending more than you can afford complicates your life and your finances. Overspending can lead to insurmountable debt at astronomical rates. It can also mean the loss of your car, home and important relationships. Living within your means provides you with the financial control to save for future investments. There are many reasons for overspending and solutions for correcting those situations.
Medical emergencies
Medical emergencies commonly result in outrageous bills. Being unprepared for a medical emergency can be financially devastating. A huge amount of all personal bankruptcies are directly related to medical expenses. The best way to avoid overspending due to medical costs is to invest in affordable private medical insurance.
Buying on credit
Credit cards are designed to make spending easy — too easy for some. If you find yourself overspending with credit cards, cut them up and replace them with prepaid cards. This way, you can still enjoy the convenience of credit cards without the financial risks associated with excessive debt.
Media and marketing moguls know that a sense of entitlement and the desire for instant gratification are their best friends. Feeling entitled to every luxury available today and wanting it right now is another common cause of overspending. While goods and services such as designer clothing, Internet access and tempting trinkets are available, it is important to decide ahead of time if you can afford them before buying. The truth is, no one is entitled to something they cannot afford.
Lack of a budget
The lack of a reasonable budget is a major factor in overspending. Unless you know where you stand financially, you cannot possibly know what you can and cannot afford. Simply put, a budget compares your income to your regular expenses, such as rent, groceries, car payments and transportation. If your expenses are higher than your income, you are overspending. To create a budget, track your expenses and then set financial goals that you can live with to avoid overspending.
Short-term goals
Focusing too intently on the here and now can be financially destructive. It is too easy to overspend on immediate, short-term pleasures that do nothing to protect your finances. Life can be stressful and little treats can temporarily make you feel better, but the long-term effects make the overall financial problem even worse. That $5 cup of specialty coffee on your way to work each day adds up to an annual cost of $1,300! Most financially-strapped individuals can better use that $1,300 in ways that would be far more beneficial: paying off debt, buying insurance or saving for a major purchase, for example.
Lack of financial goals
Without financial goals, it is very easy to overspend. Long-term financial goals should include a nest egg of three to six months of living expenses, in case of emergency or money for bigger expenses, such as taxes or buying a car and a retirement plan.
Psychological factors of overspending
There are many psychological factors associated with overspending. Depression and low self-esteem often push a person to spend more than they can afford on goods and services that make them feel better temporarily. Of course, when the bills start coming in, the psychological situation becomes even worse. Compulsive shopping is a financially devastating addiction that requires professional treatment.
To avoid common causes of overspending, create a workable budget, set realistic financial goals and live within your means. If you want something you cannot currently afford, save for it.