Overspending is a crisis that many people suffer from which keeps them in debt. It is almost impossible to get out of debt and build wealth if someone has an overspending issue. Even if a person pays down their credit card, if they keep using their credit card they stay stuck in a vicious cycle.
Being debt free seems like a joke at this point because the person is always facing a mountain of consumer debt, let alone being able to tackle a car or student loan debt. In order to become debt free it is imperative to get credit card debt and overspending under control.
Did you know that right now the total revolving debt in the US is over $1 trillion! Revolving debt is a debt that can carry a balance from one month to the next, and is typically credit card debt. Not surprising, over 41% of all households carry some kind of credit card debt, and unfortunately the households that have the lowest net worth ($0 net worth or even negative net worth) tend to hold the highest amount of credit card debt, over $10,000. The average American holds 52% more debt today than they did just the decade before. Source: ValuePenguin
On average Americans tend to own at least 3 credit cards, and over 80% of adults in the US owns at least one credit card. The average credit card charges 16% in interest fees. Source: The Street
According to Nerd Wallet the average household is paying over $1,000 a year just in credit card interest alone!
According to the Federal Reserve, only 45% of U.S. cardholders pay their card balances in full monthly. Here’s a closer look at the card payment numbers:
- 45% always pay their card balance in full each month.
- 27% carry a balance most of the time.
- 21% carry a balance some of the time.
- 6% carried a balance just once in the past year.
Many people brag about their credit card rewards and say that they don’t pay any interest because they pay off their credit card each month. Well, according to the Federal Reserve less than half of all credit card users are actually paying their credit cards off each month. Thus, the credit card companies are winning!
Here’s what the average U.S. household owes as of late 2018, according to NerdWallet’s new analysis:
- Any type of debt: $135,768
- Credit Cards (Revolving): $6,929
- Mortgages: $184,417
- Auto Loans: $28, 033
- Student Loans: $47,671
Statistics & Facts on the U.S. Advertising Industry
What is Overspending
I’m pretty sure that everyone knows what overspending is, but just in case you need a formal definition, here you go. Overspending is “the action of spending more money than you should” according to the Cambridge Dictionary.
Essentially, overspending is the act of spending more money that you have available in your budget. People overspend in a variety of ways; overdrafting their debit account, taking out a payday loan, and the most common, using a credit card. The problem with these solutions is that they always cost the person more in the long run. Overdrafting will cause overdraft fees, payday loans have extremely high interest rates (upwards of 25-30%), and using a standard credit card has an interest rate on average of 16% currently.
Overspending not only perpetuates a person to stay in debt, but it prevents them from being able to handle a financial crisis that may arise. I’m sure you may have experienced a financial crisis in your life, but just to name a few: job loss (termination, resignation, lay-off), expensive needed home repairs, expensive medical bills, needing to take care of an elderly parent, owing a significant amount of taxes to the IRS, etc.
Because life is full of ups and downs, the likelihood that you may experience a financial crisis is pretty high. If you have a significant amount of savings to fall back on then the sting of the crisis won’t be as sharp.
Why Do People Overspend
Americans are literally groomed to overspend. Significantly more money is spent on advertising in the US than any other country. The amount of money being spent on advertising in the US is twice the amount of China, which is the country in second place for advertising.
Advertisers are very smart, they are always monitoring consumer trends in order to best reach their target market. Advertisers are now looking at alternative ways to connect with their audience other than TV ads they are now investing in social media advertising.
Meet an unmet emotional need
Are you overspending due to the fear of not being good enough? Do you look at others in society and think that other people have it all together and you don’t? Do you think that you need to spend money in order to be loved and accepted ? You may be overspending due to trying to met an unmet emotional need.
This is going to take some time to heal. You need to start identifying where your insecurities started and what triggers them. A lot of these issues started somewhere in childhood. Awareness is always the first step. I have created a journal workbook to address this specific issue. Go ahead and download it now so that you can start your journal to overcoming this issue.
Lack of knowledge of income and expenses
Have you taken the time to add up your income and your expenses for the month? Do you routinely track your variable expenses (gas, clothing, gifts, personal care) in order to ensure you are not spending more than you can afford? Do you know how to do a budget? Check out this post on budgeting for beginners to get started.
Easily access credit cards
Credit card companies are targeting people with low income. They do this because statistics show the people who have a lower income have a larger amount of credit card debt. Credit card companies love to send in mailers to encourage people to sign up for their credit card. The average household has 3 credit cards!
The credit card companies want to make money off of consumers through the interest rates and annual costs of the card. The statistics show that only half of Americans pay off their credit cards each month, so they are counting on all of the income that the interest will bring them.
The average household has over $5,000 in credit card debt. With the average interest rate being 16%, the credit card companies stand a chance to make a nice profit each month, at least $60/month on average for each card. We already know that on average they are making over $1,000 a year from each card holder.
Not making enough money
Are you overspending because you are under earning? If you feel like it is impossible to meet your basic needs each month on the money you earn, you may use credit cards to make up the difference. You will need to learn more about being an underearner- there are a lot of psychological factors to be considered. You have to believe you deserve to make more money, and then seek out ways to do so. In addition, you may have to start coming up with strategies on how to increase your income.
Okay so this is a big one. Not only are you being pressured by advertisers to spend, your friends and family may put pressure on you to spend above your means. Do you give your children an over the top birthday party each year? Do you have to take big expensive trips each year (or multiple times a year)? Do you have to live in the upscale neighborhood your friends and family live in?
Do you have to buy the latest car? Do you have to buy your children and family large lavish gifts for Christmas each year? Are you trying to paint a life that your bank account can’t meet? Societal pressure is very difficult to overcome because we want to please those around us. We have to learn to stand up for ourselves, stand up for our bank account, and tell our friends and family no we can’t afford xyz.
How to Stop Overspending
Look at your emotional needs that you are trying to meet by overspending
As I mentioned already, it is important to start looking at your emotional needs that you are trying to meet by overspending. Did you feel left out as a child growing up? Start a journal to uncover what thoughts and feelings you have when you get triggered to impulse buy. I created a journal workbook just for this issue. Download it now so you can start working on these emotional triggers.
Get aware of your overspending habits and how they are hurting you
It is time to step out of denial and into acceptance. Accept that you have an overspending issue and start tracking your purchases. We all have to take accountability at some point in our lives. The good news is that accountability only helps us improve our lives over the long run. Discipline is never fun in the moment, but it is necessary and brings rewards in the long run.
What rationalizations are you using to justify your overspending
What are you telling yourself to justify your over spending? Some examples could be:
- I’ll never get out of debt so what’s the point in trying anyway
- No one is going to find out that I can’t afford this
- I have to buy this so I don’t let xyz down
- I want to give my kids more than what I had growing up
- What will people think of me
- Life is short, live in the moment
- I work hard so I deserve it
Identify what areas you are struggling with the most and focus on improving those
Sometimes we only overspend in certain areas of our life. One area that can really hurt our budget is spending money in fast food places and restaurants. Eating out like this can be very convenient, but very costly over time. The expenses tend to add up very quickly. One meal could be at least $10. If you are eating out 5 days a week, that would be $200 a month. Add onto that the other two meals of the day, your expenses add up very quickly.
Try to review your receipts and bank statements each week and record how much you are spending in each category. If you feel overwhelmed to decrease your spending in all categories, my advice would be to target 1 or 2 categories that are your biggest struggle. This way, you are making the most impact in your excessive spending.
Put items on a wish list until you can save up for them
If you struggle with impulse shopping I have a couple of tips for you that seem to work for me. I tend to plan purchases ahead of time. I will write out a list of items I need and then see when the cost of those items will fit into my budget. Some items I have to wait to buy until they can fit into my budget. This helps because sometimes I decide that I don’t need the items after all. Also, I wait to buy more expensive items until there is a sale. When I purchased my car I received a big discount due to a holiday sale.
Another method that helps me is to review all of my items and force myself to take a few items out of my shopping cart before I reach the check-out counter. This always helps “trim the fat” off of my purchases to prevent myself from buying extra items I don’t really need.
One method I recently started to try and LOVE is online grocery shopping. I found out about this through a facebook group. Essentially you purchase online groceries through the store’s website (I use WalMart) and schedule a time to pick up the groceries. This is a free service, a huge timesaver, and a great budget tool! I always know ahead of time what the total will be and I can adjust as needed.
Learn how to tell yourself no
Learn how to tell yourself no to your momentary desires in order to reach your long-term goals. This one can be very challenging! We want what we want, when we want it! Sometimes it’s hard to focus on our long-term goals when it means to sacrifice in the moment. However, it is definitely worth it when we keep our goals in mind.
Focus on your short-term and long-term goals
Do you know what your short-term and long-term goals are? It is always important to keep our goals in front of us when we are working to achieve something. You might want to create a vision board to remind yourself of where you want to be 3 – 5 years from now. I definitely recommend writing your goals down. Writing goals down is a great way to bring the goals to life. I created a financial goals worksheet that you can download here.
Declutter your home
Declutter your home! When was the last time you went through your closet and decluttered items that you no longer used? This is a great way to reconnect with how much you are actually wasting. Marie Kondo has a show on Netflix called Tidying Up. I would recommend that you incorporate her decluttering method. Once you declutter you realize how much money you have wasted because you rarely use or get enjoyment out of the items you are decluttering. It is a great deterrent from overspending. It makes you conscious of your spending.
Finally, reward yourself! You have been doing a lot of hard work! Figure out what type of reward is most motivating for you and make sure you reward yourself when you meet your short-term and long-term goals. This will help you to stay motivated and on track!
Today we talked about overspending. Specifically, we looked at how Americans are targeted to overspend by advertising and credit card companies, and ways to overcome overspending habits. As we discussed, there are a few ways to overcome overspending, and you might want to start my uncovering your subconscious beliefs that are keeping you stuck.
I have created a simple journal that you can download for free in order to get to the root of the issue.
Please go ahead and download it now.