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Know the risks of overspending and learn to budget
Being disciplined with your money will help you meet your financial goals.
In an increasingly cashless society, it’s easy to spend money without seeing it physically leave your wallet. Credit cards, debit cards, apps and websites make it effortless to pay for goods or services.
But if you’re not careful about what you buy, you could end up overspending. This can lead to mounting debt, financial stress, and a constant struggle to make ends meet. You may find yourself trying to borrow money from friends and family, which could put a strain on your relationships.
If you want to achieve your future financial goals – from educating your children and planning for retirement to paying off your home loan or quitting your job to start your own business – you need to break the habit of overspending.
Consequences of overspending
The consequences of overspending include:
Constantly needing money
If you are constantly short of money after paying your bills, living from pay cheque to pay cheque, it means you don’t have a budget in place to help you control your spending.
No emergency fund
You need to save a bit of money every month to build up an emergency fund – money you can withdraw when you face urgent unplanned expenses. Not having an emergency fund leaves you vulnerable in times of crisis.
No long-term financial planning
If you can’t afford to save even an emergency fund, it’s unlikely that you have any money to spare for retirement planning and life or disability insurance, either. Overspending could be robbing you of a comfortable retirement, or robbing your family of the financial security to maintain their lifestyle if you were to become disabled or pass away.
Retail therapy addiction
So-called ‘retail therapy’ whenever you feel down, anxious, angry, or sad might make you feel better for a short while, but it could easily become a compulsive habit. Even if unplanned splurging gives you a temporary mood lift, it can increase your debt levels and leave you with less to save.
Paying bills late
If you regularly skip payments or pay bills late, it signals that you are battling to control your finances. In the long run, late bill payments could cost you a fortune in penalty interest or fees.
If you’re clear about what you want to achieve in the future, you’ll have more motivation
Poor credit score
Not paying bills or paying them late will have a negative impact on your credit score. A poor credit record makes it both more difficult and more expensive to get credit in future.
Mental and physical stress
If you are constantly financially stressed, you could develop mental health problems like anxiety, depression and insomnia, or even physical symptoms like stomach aches, ulcers, headaches, muscular tension, and teeth grinding while you sleep.
Understand the psychology of money
We all have a complex relationship with money. We know we need a sound financial plan to lead secure lives, but we often stumble. It’s important to understand the psychology of money, which affects how you spend. Low self-esteem could be a factor. You could be prone to overspending to boost your self-image and try to impress others, or to gain acceptance or affection.
You need to understand the subconscious issues and triggers that cause you to spend more than you earn, if you’re going to tackle overspending. Are you trying to fill a void in your life? By recognising the emotional needs that you’re trying to satisfy by buying stuff, you can pause and make more conscious choices when you shop. Ideally, you should be able to tell your wants from your needs and not spend on wants unless you can afford them.
But first, you need to take an honest look at where your money goes every month, so that you can work out what you’re overspending on. Motivation by an expert might help you to stay disciplined. Consult a financial planner who will tell you the truth about your spending and saving habits, rather than what you want to hear.
Sticking to a budget to avoid overspending
Create a realistic monthly budget to track your monthly spending. Draw up a list of expenses versus your income. You can also use MoneyTracker on the Money app. A budget will help you to identify your needs versus your wants.
Develop disciplined spending habits. For example, make a list of what you need when you go grocery shopping and buy only what’s on the list – don’t buy anything on impulse. Practise delayed gratification and set yourself a ‘cooling-off period’ before you buy anything that you think will improve your life. It also helps to set spending limits. Before going out with family or friends for food or drinks, set a threshold for how much you’ll spend and stick to it.
Pay off your debt and open a savings or investment account that makes your money harder to access – like a fixed-deposit or notice account.
Consult a financial adviser to help you create your financial goals for the short, medium and long term, and advise you on the savings and investment products you’ll need to achieve them. If you’re clear about what you want to achieve in the future, you’ll have more motivation to start handling your money better today.
