7 Ways to Control Your Habit of Overspending

With surging inflation and increasing macroeconomic uncertainties, managing our expenses has become more critical than ever. You need to ensure that you have more money than earlier in your bank account, which can be done by controlling your spending habits wisely and increasing your savings this year in 2023.

Have you ever had the best intentions to conserve money at the beginning of the month but spent more than necessary? Despite earning well, do you feel like you never have enough money to cover your necessities and wants? Do you struggle to restrain your urge to shop? You might then become a victim of overspending.

Like overeating, excessive spending results from short-term thinking without fully weighing the repercussions. Spending money can also be like a drug to some people as it's a quick, albeit costly, way to feel better. Before you know it, you've spent more money than you wanted to, there are many reasons why you overspend. It could be because you aren't aware of your true spending habits. Maybe you are incorrectly estimating your income, expenses, debt payments, and spending. It can be a long weekend, a treat for friends or colleagues, celebrating a special occasion, buying the latest smartphone or simply impulse spending. It is easy to get caught up in the excitement of the festive season and overspend. This happens to almost everyone, and we all have trouble curbing our spendings.

However, you don't have to change much to regain control over your expenses. All you need is to find ways to curb the spending so you will have the surplus money you can allocate to savings and investments.

The good news is that overspending can be controlled; you can always check on your expenditure and save some funds to enjoy the rest of the year ahead.

In this article, we will take a look at some of the common reasons for overspending and how these 7 tips will help you keep your spending in check.

1. Understand Your Overspending Triggers

In many cases, knowing how to stop spending money involves identifying the emotional and You may not notice how you are overspending to try and maintain your current lifestyle. psychological triggers that cause us to spend. Sometimes overspending is not only linked to a lack of discipline but also other issues. Why do you overspend? Does shopping ease your stress? Does it help to ease your anxiety levels? There are many factors that can lead to overspending, and knowing your triggers will help you to overcome them.

There's no denying the dopamine rush you get from buying something new. It's not always easy to break the cycle of a shop, spend, repeat. It can be tempting to overspend, but it is best to resist the urge. So the next time you head out the door, keep these in mind. There are a few factors that influence your spending habits as below:

• Environment - There may be certain environments that make you want to spend or make you feel obligated to spend just because you're there. Craft fairs, shopping malls, home shows, and even when you're on holiday are all prime examples of times when you're more likely to spend impulsively. Try to make wise spending decisions in any such environment.

• Mood or Mindset- Different moods and emotional states can alter our energy resources, making us more prone to impulse shopping. For example, if we're upset, stressed or anxious, we may seek retail therapy to feel better. Instead, you could hit the gym or park for a walk or do your favourite activity like a music or dance routine to lift up your mood. 

• Peer Pressure - Do you find that when you're among your pals, you tend to spend more money than you typically would? Even the best of friends can be a detrimental influence on us, particularly if they, too, have unhealthy spending habits. It's appropriate to turn down invitations from your friends if you can't afford to eat, shop, or travel as they can.

• Lifestyle - If you are used to a certain way of life, it could be tough to change when you subsequently run into financial difficulties. But, you can find yourself in worse shape if your lifestyle eventually outgrows your financial resources and you don't know how to quit going overboard. To begin living within your means, make a budget and stick to it.

Join Now: PersonalFN is now on Telegram. Join FREE Today to get 'Daily Wealth Letter' and Exclusive Updates on Mutual Funds

2. Maintain a Budget

Not having a spending plan can be a big reason many people can't keep control on their excess spendings. If you do not keep proper track of your earnings and spendings, you will continue buying what you think is affordable, only to realise at the end of the month that your bank account isn't as plush as you thought. Your budget can be tailored as per your requirements and should include 20% for your wants, 30% for savings, and 50% for your monthly necessities or needs.

[Read: 5 Simple Steps to Create Your Personal Finance Budget for 2023]

Maybe you went out on a few social outings and ended up spending more than you intended. Or you came across a tempting item on an online selling portal and couldn't resist buying it. Whatever the case, it's important you stick to your budget and do not go overboard. This may seem like a no-brainer, but many of us forget to set a budget. Creating a budget will help you stay accountable and will prevent you from spending more than you should. Make sure that you're also setting aside savings consistently. If you suddenly have the urge to buy something, whip out your budget and make a responsible decision.

3. Put Limits on Your Credit Cards

Swiping a credit card rather than counting out a stack of cash is more convenient, but this ease of use also contributes to overspending. The drawback of credit cards is the ease of access to spend more than you have. Many people frequently are ignorant of how much their monthly expenses will total. Having your credit card information saved on your shopping profile whenever you shop online is convenient, but it also makes it simpler to make impulsive purchases.

While a credit card is a great financial instrument, if misused, you can end up in a debt trap due to high interest rates. Thus, to overcome the frequent use of credit cards, you may consider putting monthly spending limits on your cards. This will not allow you to spend over a certain limit in a month, and it will be easier to control your overspending urges then.

4. Practise Delayed Gratification

Remember that short-term pleasure leads to long-term pain. This is essentially a universal law. Pleasurable things in the short term ultimately cause us to suffer in the long run. For example, getting your hands on the latest electronic gadget like 'iPhone' might be satisfying today, but what about three months from now? If you have purchased the smartphone via a consumer durable loan to satisfy your instant gratification, you will create an unnecessary debt burden with obliged EMI payments. Instead, you may consider practising delayed gratification. The ability to delay the impulse for an immediate reward to receive a more favourable reward later is a standard definition of delayed gratification.

Non-essential purchases can wait; you will be constantly challenged by temptations to splurge on items to live up to the trends amongst peers. Knowing how to delay gratification is important to control your overspending. It's worth reminding ourselves that we can't have the best of both worlds every time. A little bit of adjustment does prove prudent.

5. Be a Smart Shopper

One of the best ways to overcome overspending is to begin saving. Try to shop for groceries and other necessities at discount stores or buy them in bulk. Before ordering, you can compare the pricing of regularly ordered items on various apps. List out which grocery services app is running free delivery or a weekend sale. Remember, "A penny saved is a penny earned."

Everything from ordering food to shopping is convenient when the world is at your fingertips. Nonetheless, getting rid of unused apps is necessary if you want to avoid overspending. Turn off the notifications for these apps to start or just uninstall the apps. You will be more enticed to make purchases of items you most likely do not need the more often you use these applications. Make a promise to yourself that you won't use these applications for at least a month. Be careful when visiting social media, as many shopping apps place their advertising based on how you browse in an effort to get your attention.

6. Set up Auto-debit for Savings And Investments

Using an auto debit function on your bank account is one of the easiest strategies to stop idly spending. Simply set up an auto-debit from your salary account to another savings account, and make sure to not have access to the new account's debit card or net banking. Also, don't connect that account with any UPI apps. It is like moving some money out of sight every month and apporting a certain amount for savings, specifically an emergency fund.

Another option is to set auto-debit SIP investments from your bank account, this helps you to invest in the mutual funds of your choice. It instils a financial discipline of saving and investing regularly. At the start of the month, ensure that the amount required for bills, savings, investments, etc., are all auto-debited from your savings account. The rest is for you to use as you wish. This way, not only will you fulfil your financial obligations for the month, but you can also spend money guilt-free without harming your finances.

"Do not save what is left after spending but spend what is left after saving." - Warren Buffet.

7. Define S.M.A.R.T Financial Goals

Setting some attainable financial goals is a great way to stay motivated as you alter your spending habits. Having these goals will constantly remind you of the reasons you are cutting back on expenses and making a few sacrifices. Your financial goals do not have to be lofty; even something as simple as investing 10% of your salary each month is good enough, to begin with.

When you have something exciting to save for, your overspending impulse will start getting curbed. Given that, it is also prudent to make investments in mutual funds that are aligned with your financial goals. It is always beneficial to make investments based on certain goals rather than investing haphazardly.

To conclude...

Disciplined financial behaviour is of paramount importance. Understanding the difference between necessities and wants is important. Planning ahead of time, creating an effective budget, and, most significantly, knowing your financial situation by comprehending short- to medium-term cash flow scenarios help you become aware of your spending patterns.

Due to their lack of financial understanding, many people, however, are unable to break their habit of overspending. Financial literacy helps you gain knowledge about the nuances of basic money management skills, and it guides you on savings and how to create a budget. If you are financially aware, you can better comprehend the above-mentioned ways to overcome your overspending habit. 

MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.

She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.