Virtually everyone’s done it. You create a budget, do your best to stick to it, and then out of nowhere — oops — you realize you’ve overspent, whether by a few dollars or a significant sum.
While overspending money now and again isn’t necessarily detrimental to someone’s finances, you may find that if you overspend too much and too often, it can be difficult to reach your financial and personal goals. Spending beyond your budget can happen for a lot of reasons — emotions running high, relying on credit cards, and being impulsive can all lead to breaking your budget and landing in debt.
Let’s take a closer look at 15 different causes of overspending and how to take back control over your personal finances.
What Is Overspending?
Essentially, overspending money is spending more than you can afford to. What does that mean? If you are living paycheck to paycheck or don’t have enough money left to pay bills (even though you make enough money to cover your expenses), you may be overspending and living beyond your means.
Another example is if you can’t meet the savings goals you have set. Too much outflow of cash on purchases can throw your budget out of balance.
Using credit cards to cover gaps, tapping emergency savings for non-urgent expenses, and feeling guilty when spending money can also be signs of overspending.
Reasons Why People Overspend
There are many different causes of overspending. Here, learn about 15 of the most common reasons.
1. Heavily Using Credit Cards
If you make a purchase using a credit card, it’s easy to overspend. You aren’t taking cash out of your wallet, nor are you seeing your checking account balance dwindle as you do with a debit card. It can be “out of sight, out of mind” spending, which can be easy to take too far.
Also, if you can’t pay off your balance when your monthly bill is due, you’ll end up paying interest on those purchases. When you rely on credit cards in this way, you’re spending even more than the purchase price of the items because of the interest payments.
2. Recklessly Spending Money (No Financial Discipline)
Spending temptations are real, and some of us may simply find it hard not to spend. It takes time to achieve financial discipline; it typically involves creating and sticking to a budget. You have to buckle down and realize that overspending can have long-term negative consequences.
One type of spending to avoid in particular happens with what’s known as lifestyle creep: You earn more money over time, and start spending on more lavish housing or cars or vacations and wind up struggling to meet your money goals.
3. Spending Money Out of Boredom
Bored at home? Why not go online shopping, head to the movies or a day spa, or order takeout? When you’re at loose ends, you may try to entertain themselves in ways that really add up financially.
Recommended: Guide to Practicing Financial Self-Care
4. Not Planning and Budgeting
One of the main reasons for overspending? You don’t have guardrails. Money can feel quite abstract at times, especially now that most people use a debit or credit card instead of cash to make purchases. Not budgeting and making a plan for your money can cause accidental overspending since you, say, didn’t realize that you were way over the funds allocated for travel or dining out. It can then be hard to get your finances back on track.
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5. Emotional Spending
Spending money can be fun and exciting. When you’re feeling down, buying yourself a treat can lift your spirits; when you’re anxious, it can distract you from what’s causing you to worry. And if you have reason to celebrate, you may want to mark the moment with a self-gift as well. If it’s something small, these scenarios can be fine, but should you go overboard, you can throw your budget out of whack. Emotional spending can lead us to buy things we don’t need but want and can trigger bad financial decisions.
6. Money Is Easily Accessible
When you have money in your checking account, it’s very accessible to spend. Especially right after payday, that balance may look very pumped up and tempting, almost inviting you to overspend. You may find that automatically transferring some money out of reach into a savings account, money market account, or certificate of deposit can help you avoid spending temptations.
7. Falling Into Consumerism and the Need for ‘More’
Every single day, we are bombarded with ads and other messages, encouraging us to buy more and to purchase things that will make our lives easier or better — or simply more stylish. Anyone can fall into the trap of consumerism and the need for “more.”
Recommended: Guide to Getting Caught up on Late Payments
8. Trying to Impress
Big houses, shiny cars, luxury watches: It can be very tempting to turn to status symbols to try to impress the people around you. Spending money this way — to feel as if we fit in and get an ego boost — often does nothing more than have us rack up debt for an item that brings us fleeting happiness.
9. Impulsive or Compulsive Buying
Sometimes, spending goes from “overdoing it” into the territory of impulsive or compulsive shopping, which can become an ongoing budget problem. Signs of impulsive or compulsive spending can include buying things that go unused, spending a lot of time searching for deals or the one “perfect” thing, or maxing out credit cards.
10. Giving Into Temptation
Sometimes the opposite of impulsive spending occurs — you might wait and wait to make a purchase you know you can’t afford. Then, one day, you succumb to temptation anyway and overspend. This can be just as damaging as impulse spending even if it takes longer for it to happen.
11. Having a Lack of Patience
Sometimes we overspend because we want something ASAP. Perhaps you need a new dishwasher but can’t be bothered to shop around and buy the first one you see. Or maybe you want a pricey new suitcase but don’t want to wait for the inevitable sale to start. These are examples of scenarios that can lead to overspending.
Being patient can help you spread out purchases over time and get the best possible price. Also, following the 30-day rule for impulse buys (wait 30 days and see if you still feel you must have an item you are dying for) can help you realize that sometimes, overspending happens in the heat of the moment. Wait a while, and you may have clarity and better cash management.
12. Normalizing Debt
Some forms of debt, especially low-interest debt like student loans or a mortgage, serve a valuable purpose. These can help build your credit history and a positive credit score, and (for mortgages, at least) you build equity, which helps you grow your wealth.
But if you rely on high-interest credit cards or personal loans to make purchases, and tell yourself “everyone does it,” you are not operating with a positive money mindset. Just because the average American currently carries about $5,769 in credit card debt and the average interest rate on credit cards is hovering around 15% to 19% doesn’t mean it’s a good thing. This kind of debt can hang over you for years and limit your ability to save for other goals, like a down payment for a house or retirement.
Recommended: Credit Card Interest Calculator: How Much will Interest Cost You?
13. Not Being Able to Say ‘No’
Not all overspending happens in stores. When friends propose a weekend getaway, your cousin wants you to be a bridesmaid, or your in-laws insist on an upgraded guest room for them to stay in, it can be hard to say no. The fear of disappointing others can lead us to overspend rather than saying, “Sorry, I can’t afford that.”
14. Lifestyle Maintenance
Our budgets change over the years, and “lifestyle creep,” as mentioned above can kick in. You change jobs or get a raise and think that’s the signal to rent a pricier home with lots of amenities or buy a whole new wardrobe or lease a luxury car. This can lead to overspending. The reverse also holds true: If you lose income or are living in an era of high inflation (such as our current situation), your money won’t go as far. If you don’t economize in some way, you may well wind up overspending.
15. Having a Sense of Power
Spending money can make you feel in control and powerful. For example, if someone’s home is cluttered, buying a new closet organization system can make them feel more in control. The same goes for new furniture, an amazing vacation, or anything else that makes us feel like we’re the one calling the shots in our lives. But doing so can be a sign of confusing needs and wants and land us in debt because we’ve overspent to get that sensation of power.
Tips to Overcome Overspending
Let’s look at a few tips that can help you overcome overspending and help keep your bank account happy while whittling down your debt.
• Create a budget. Knowing how much money you can really and truly afford to spend can help you decide whether or not to make certain purchases. It’s a good idea to add financial goals such as saving for a home or paying down debt to a monthly budget so that you know how much you can spend while still prioritizing your goals.
• Reduce credit card spending. If you need to turn to a credit card to afford a purchase, that can be a red flag that you may want to skip the purchase. It will also help you avoid overspending on interest.
• Reduce monthly bills. To make more room in your budget and cut unnecessary expenses, take steps to reduce your monthly bills. For instance, you might drop underutilized entertainment subscriptions, see if you can switch from a high-interest credit card to a low- or no-free balance transfer offer, or even move to a less expensive rental.
• Understand your spending habits and triggers. Review your monthly spending, and look for patterns. Do you tend to go shopping when you don’t have plans on weekends? Has your once-a-week takeout habit grown to three times a week? Are you joining a high-earning friend at high-priced dinners or getaways that are adding to your credit-card debt? By analyzing where and when you spend, you may be able to course-correct in the months ahead.
Recommended: 9 Tips to Stop Overspending
There are a lot of reasons why people overspend. What causes one person to overspend tends to be different than what motivates another. Why you might overspend one month doesn’t necessarily explain why you rack up big bills the next.
Being aware of what you can afford to spend, thanks to a budget, and knowing when and why you are likely to overspend by doing some self-reflection, can help you take control of your finances and avoid spending too much.
If you are looking to potentially save more and keep better track of your spending, you may find that SoFi Checking and Savings is a great fit for you.
When you open an online bank account with us and sign up with direct deposit, you’ll earn a competitive APY and pay no account fees, which can help your money grow faster. You’ll also have cool tools that help you organize your money, set savings goals, and save your change with Vaults and Roundups.
What are the effects of overspending?
Overspending can lead to financial stress, taking on high-interest credit card or personal loan debt, and other problems such as not being able to pay all monthly bills or save for other, longer-term financial goals.
Is overspending always negative?
Overspending isn’t ideal, but it isn’t always detrimental to someone’s finances. As long as you can pay all your bills and don’t need to turn to debt when you overspend, the only downsides will be not making more progress towards your financial goals nor building wealth.
How do you avoid the temptation of overspending?
There are a lot of causes of overspending. Creating a budget is a great way to avoid unnecessary spending temptations since you’ll have financial guardrails. Also, understanding your buying triggers, such as boredom or low self-esteem, can help you to not overdo it.
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