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Overspending is easy. We all do it from time to time — but frequent overspending can quickly become a problem.
It can have lasting effects, from damaging your credit score to leading to guilt and financial stress. Understanding why we overspend can help us to develop strategies to stop before we hit our budget.
Here are three common reasons why people overspend and how to tackle them. See if you recognise any of your habits in the reasons below.
Common reasons for overspending
Old habits die hard
Once we form a habit, it can be really hard to break it. Habits can be really healthy, if it’s something that benefits us like going to the gym or hitting our 5 a day.
But habits can also form around negative things like addictions, impulse buying or taking up Buy Now Pay Later schemes.
These habits can be financially damaging and lead to stress, which can make them even harder to break.
How to break bad spending habits:
- Increase your awareness: Recognize the habits that lead to overspending, like impulse purchases and note down any times you think you’ve acted in this way.
- Work towards creating new healthy habits: Replace your bad habits with good ones. This could include making a budget to understand your spending, prioritising your debt over impulse buys and setting goals for your savings.
- Accountability: Share your new habit goals with friends or family. This can significantly boost your success rate, as studies suggest accountability increases goal achievement by up to 95%.
The future-self fallacy
We tend to assume that our future selves will think and feel like we do now. This is called projection bias, which can lead us to make poor spending decisions today without considering their future impact. For instance, impulse buys may feel rewarding now but often we tend to regret it later.
How to overcome this bias:
- Pause before purchases: Give yourself time to think over larger purchases. This helps you avoid emotional spending.
- Focus on long-term goals: Reflecting on where you want to be in the future can help align your spending decisions with long-term happiness rather than short-term gratification.
Short-term vs. long-term happiness
We often confuse short-term happiness, like the thrill of buying something new, with long-term contentment. Hedonic adaptation means that the joy from new purchases fades quickly, while financial security brings lasting peace of mind.
How to find balance:
- Prioritize long-term satisfaction: Consider how purchases align with your long-term goals, like financial independence.
- Reframe your mindset: Reflect on how you feel about current possessions versus when you first bought them to gain perspective on future purchases.
Building better habits
It’s possible to replace spending habits that lead to debt with ones that promote financial stability. Budgeting is a great place to start, offering a clearer picture of where your money goes and helping you make better financial decisions.
If you’re struggling with debt or overspending, remember you’re not alone. There are free resources available, such as StepChange, Citizen’s Advice, and Mind for mental health support.
