Frank Conway, financial literacy expert and founder of MoneyWhizz and Irish Financial Review, identifies some common overspending triggers and shares the steps to take to establish healthier spending habits*
What triggers overspending?
We’re all familiar with spending more than our income but we may be less aware of the emotional triggers behind our overspending. Understanding how to manage these emotional triggers can help us to control spending more effectively.
Trigger 1 – Environment & Events
Some environments and events make it harder to resist spending. Black Friday and New Year sales are designed to encourage sales ‘fever’ while events like Christmas and birthdays might make you feel that you ‘must’ spend more than you have.
Manage these emotional triggers by setting a spending limit before you go shopping. Write your limit on a yellow stickie and post it on your computer screen. Heading out to the shops? Leave your debit or credit card at home and take only the money you can afford to spend with you.
Trigger 2 – Stress
It’s not called retail therapy for nothing. We can sometimes overspend as a way of trying to relieve our feelings of boredom, depression or stress. But any immediate relief from this kind of therapy comes with a longer-term price tag.
Manage these emotional triggers by first becoming more aware of the link between how you feel and how much and how often you spend. Over time, establish more healthy ways to manage stress that don’t impact your finances.
Trigger 3 - Peer pressure
We all feel the pressure to ‘keeping up with the Joneses’ from time to time and that can cause us to spend beyond our means to look good to our peers. Unfortunately, the Joneses don’t care that much about your financial wellbeing.
Establish a budget that will help you to meet your financial goals (not anyone else’s) and allow yourself a reasonable amount for spending regardless of the lifestyles of friends and family.
Trigger 4 – Denial
When your finances take a hit, you’ll almost certainly need to cut back on spending or find a way to earn more. Few people enjoy cutting back but some respond to their changed circumstances by denying that it is happening and simply carrying on. This rarely ends well.
The sooner you react to a dip in your finances, the sooner you’ll be able to manage the change. The easiest way to do this is by creating a budget based on your new income and outgoings then living within it.
Putting your finances on track
Even a small amount of spending will add gradually up if it’s part of a regular spending habit. That’s why tracking how much you spend down to the last cent is essential if you are serious about getting and keeping your finances on track.
Make money visible again
Using a debit card is very convenient but you might lose track of how much you’re spending. So, if you have difficulty budgeting, are spending more than you earn and are always low on funds, you may consider returning to cash for a while.
Using cash may help you to pause and make a conscious decision each time you think about buying something which may help control your spending.
Set short-term financial goals
Goal-setting is a powerful way of motivating you to manage your money. For example, your short-term goal might be to save €1,000 towards a holiday over 6 months. This means you’ll need to save about €5.50 a day. Setting short-term, medium-term and long-term goals will help you to put your money where your hopes are and give you the encouragement to cut spending to achieve your goal.
Learn How to Budget Money
Not having a personal budget or a money plan is a key reason why people struggle to stop spending money. A budget is made up of two parts - your income and the amount of money you spend on a weekly, monthly or yearly basis.
So review your payslips, current account statements, credit card statements and receipts to understand exactly where your money goes. You can use a simple budgeting sheet to guide you. Track your money for 3 months to get a very good snapshot of your spending habits.