“As of November 2020, [U.S.] consumer debt is at $14.2 trillion, with Americans carrying an average personal debt of $92,727.” –Bankrate.com, Feb. 3, 2021
While credit can be a good thing – allowing us to build businesses, buy homes, get an education, and so much more – debt can also become a crippling burden for individuals, families, and businesses, especially when mounting debt is left unchecked.
The reality is that a sizable portion of the US population struggles when it comes to spending and managing money. The good news is, it’s not unusual and it can be fixed. So take a deep breath, give yourself a hug, and pulls your sleeves up. We’re going to help fix your overspending.
To get you started, here’s four things you can do right now to stop the overspending and start getting your finances back on track.
Top tips for getting control of your spending today
1. Make a budget
This might sound a little yawn, but creating a budget is the single most important thing you can do for your spending right now. In order to stop overspending, you need to know how much you’re earning and how much you’re spending and start thinking about how to get the two of them working together.
If you’re someone who avoids checking your bank account, this might seem scary. But ripping off the band-aid and getting a better idea of your real financial situation is a huge step you can (and should!) take right now to start fixing your finances.
Once you’ve taken a peek, get your hands dirty and get to know your finances. Make a list of all your confirmed income and everything you spend money on in a month – including the things you want, rather than need! Sort it all into categories, and start working out how much you want to spend on each category, where you can save, and what you can do to make more money if you want your income to come up to meet your lifestyle instead of the other way around.
Fun fact: Increasing your income is usually easier than cutting back, in the long run.
And don’t forget to budget for a rainy day fund – there are many reasons people go into debt, but one common driver of debt is getting caught unprepared with surprise expenses or unexpected drops in income (…say, if a pandemic were to happen). You can’t prepare for everything, but you can do your best to set yourself up for better financial stability.
2. Phone a friend
In budgeting, as in so much in life, an accountability buddy can help you stay on track when your own resolve weakens. Find a friend or family member who’s also trying to change their financial situation. For better or worse, the odds are pretty good that most people you know would like to retool their budget or are working toward financial goals.
Making fixing your financials more social and adding an element of competition can help motivate you to stay on track while also making them less scary to think and talk about – it’s a win-win situation! Just make sure your friendly competition remains wallet-friendly for all involved.
3. Take it one day at a time
For many of us, overspending comes from stress and reward mechanisms. (Huh? It’s true!) See, binge-shopping and overspending frequently come from the same emotional place as other impulsive and addictive behaviors, because they give you a rush of good feeling in the moment.
One of the best ways to break this cycle is to use time as your secret weapon against the emotional and impulsive side of your overspending. Practice the 24-hour rule when you find yourself considering making an unplanned purchase.
The 24-hour rule is simple. Tell yourself that, if you still want to spend that money in 24 hours, you can. Then ask yourself again tomorrow if you still want to spend the money. And if the purchase is particularly big? Wait an extra day for each $100 it’ll cost you.
Using this method, you can cool your spending jets and start figuring out what you really want and what’s worth spending money on to you.
4. Be kind to yourself
Last, but certainly not least, the final tool to reduce overspending is practicing compassion toward yourself. If that sounds a little hippy-dippy to you, hang tight – this makes a big difference.
See, the stricter the new rules are that you give yourself and the harsher you are with yourself when you fail, the more likely you are to trip up. Think of it this way: An extreme new workout routine is harder to keep up in the long run than gradually making small changes. A kid who isn’t allowed candy at all at home is more likely to eat too much candy when given the chance. It’s harder to play piano when someone is staring at your fingers, judging your playing.
If you give yourself an excessively strict, no-fun budget, and critique yourself harshly, you set yourself up to blow it every time. No one can live like that, and it’s not pleasant to try. Instead, aim for sustainable changes to your financial habits and give yourself an allowance in your budget for those splurge-y things. Just keep the splurges to a level you can manage and keep your eye on the prize of your long-term financial goals. And if you trip up, you trip up. Just keep trying and change will come over time.
And that’s how to stop overspending ASAP
Know your finances inside and out, find an accountability partner, throw 24 hours at any impulse spending opportunities, and give yourself room to play. With these four strategies, you’ll get your spending in check in no time.
And if your finances are a bit more complicated, or you need help seeing the financial forest for the trees, don’t be afraid to bring in the professionals. Like us! Prax is a team of community-minded financial planners and accountants helping businesses big and small set and meet their financial goals.
Find a time to meet with us today.