Ask yourself these questions.
- Do you often find yourself spending a great deal of money on stuff you don’t really need?
- Have you been unable to save because of poor budgeting or a total lack thereof?
- Are you unaware of your spending habits?
- Does financial freedom seem like something you truly want to achieve but somehow also frustrate you?
If you feel like your answer to all these questions is yes, there’s no need to despair because we’re here to help you out. Financial literacy goes a long way, and it starts with awareness.
The Cost of Overspending
It’s easy to overspend if you don’t keep track of your everyday spending. And if you overspend quite often, you may find yourself short of cash at the end of the month. This cycle could lead to debt or unpaid payments. If you’re always running out of money, it’s time to get serious about budgeting.
Some people believe that being frugal or living below your means is the key to accumulating more money. However, it is not always easy to live by this rule if you have a low salary, are paying loans, or are helping other people financially.
Your own financial goals, as well as the lifestyle you want to live now and in the future, will determine how much of your income you should spend versus save or invest. You may be able to identify these and establish a plan on your own, but a financial planner can assist you if you are overwhelmed or hesitant.
The following are some indicators that you’re spending more than you can afford, as well as some advice on how to get back on track.
8 Signs That You Are Overspending
- Overdue or unpaid bills
Everyone spends on necessities, relaxation, and entertainment. However, necessities must always be your priority over leisure and amusement.
If you have overdue expenses but still manage to have some leisure and entertainment, it is advisable to divert your resources to cover your more important needs. If you still have unsettled bills after allocating all of your resources toward necessities, you may need to create payment arrangements or seek a second job to handle the problem.
Paying your bills late also means you are most likely overspending. Getting payment follow-ups from your providers or creditors not only generates stress but also costs money in the form of late penalties. If this happens frequently, now is a good time to make some basic changes.
Get your calendar out and mark the dates when everything is due. Then begin keeping track of your finances and paying your expenses ahead of time before they become overdue.
- Always borrowing from friends or family
You may be overspending if you rely on friends and family to cover ordinary expenses regularly. Even though these loans are interest-free, they can cause stress if you are unable to return them. Additionally, if you are unable to repay the loan as promised, you may be putting your friend or family member in a financial bind.
When it comes to any relationship, it’s best to not involve money. Maintaining friendships and forming new ones takes effort — but when money gets involved, though, things get a little dicey.
Caution must always be exercised when borrowing from friends and relatives. These could be people with whom you have a strong emotional bond and the ones you can count on in difficult times. If you take out a loan from them and can’t pay it back on time, the relationship may suffer and end. Furthermore, borrowing from extended family may result in a negative reputation among relatives.
- A budget based on hourly rate or compensation
You may have a job title that has a beautiful, round figure attached to it, whether it’s an annual income or an hourly rate, but that’s not what you’re bringing home. As soon as the government deducts its portion of taxes, you’re probably left with less than you expected.
Perhaps you’re overestimating how much you can afford to spend if you budget your money based on your pre-tax income rather than the amount that ends up in your pocket. Consider determining your take-home pay using a simple online calculator and proceed from there.
- Unable to track where your money is going
When you find yourself wondering about your cash flow or trying to figure out where your money is going, it’s pretty indicative that you frequently deny or disregard your spending habits. And each time you ignore this issue, the more it tends to continue.
It is in your best interest to sit down and take charge of the problem if you find yourself in this circumstance; otherwise, you will just keep on overspending over and over again.
Make a plan or budget and take note of your income and all your expenses. Doing this consistently and proactively will enable you to know where your money is going and find out where some adjustments are necessary.
- Expenses that are not in proportion to earnings
Having more money coming in than going out is the key to financial stability. As you add up all of your fixed and variable monthly expenses — from rent to meals and internet expenses — make sure the total does not exceed your monthly income. If it happens, and you do not make some cuts, you may find yourself getting more loans than what is healthy for your finances.
People with irregular income, such as contractors or freelancers, may find it difficult to manage their financial flow. Find your income baseline — either the average of your last 12 months’ earnings or, for added safety, your worst-earning month — and use that to set your spending limit.
- Food wastage
In general, it’s not a big mistake to spend money on food. It is, after all, a basic need for you to eat. However, your food spending patterns can sometimes reveal more about you and your overspending habits.
You will know you’re spending too much on food when there’s spoilage going on. If you buy a lot of food and end up with rotten food, you’ve overspent in that category.
Food is a necessity, but that doesn’t mean it’s a good idea to spend more money on it when some of it will go bad.
How do you keep your food from spoiling? One thing you can do is make a meal plan every week and stick to it as if it were the only plan that will work. You may also use a budget printable binder kit, which includes a meal plan and grocery list, a monthly family budget, and a bill tracker.
- Purchasing things just to keep up with or impress friends
If you’re buying tickets to every concert or going to every happy hour because that’s what your friends are doing, it may be an indication you’re overspending. Many of us suffer from the “Keeping up with the Joneses” syndrome, which is exacerbated by social media.
You probably don’t know each of your friends’ financial position, so presuming you can afford something because they can — or, worse, trying to impress them — isn’t a smart strategy.
Always keep in mind that your needs may differ significantly from those of others and the majority. Don’t rush into buying what other people are buying because this clearly shows that you’re overspending.
If you find yourself trying to keep up with everyone and justifying the need to shop the same items, you may want to consider reflecting on this area. This is one of the quickest ways to get yourself into financial difficulties, which, if not addressed, can lead to unmanageable debt.
- No savings at all
Putting money aside for retirement and major purchases should always be a component of your budget. You may think you can’t save because you don’t make enough money or your rent is too costly, but the odds are you’re simply overspending.
Take a detailed look at where your money is going every month with an app like Mint or Personal Capital and choose one or more areas to cut back on or eliminate. Better yet, speak with a financial advisor who can assist you in developing a plan for short- and long-term savings. You have more financial control than you think.
In some cases, it can be difficult to pinpoint why people are spending more money than they should, while others have it all too clear. The wisest course of action is to take the time to re-assess the underlying issue and work from there.
You will never go wrong examining your spending habits and patterns because doing so will reveal if you’re going over your budget. Keep in mind that any financial blunders, no matter how minor, can harm your life and future if they are not addressed.
If you’re having difficulties balancing your budget because you’re carrying a lot of debt, don’t be ashamed to make lifestyle changes. The sooner, the better.