The Complete Guide: How To Stop Overspending

One of the best tenets of personal finance is to not spend more than you earn. So if you’re finding that you don’t have money left over before the end of the month — and especially if you need to rely on borrowed money for monthly expenses like credit cards — you may want to consider learning how to stop overspending.

3 Overspending Tips At A Glance

Cutting back on major spending areas such as housing, food and transportation can help you keep your budget on track.

3 Signs You Might Be Overspending

Overspending happens to almost everyone at some point. It might be time to make some changes, though, if you find you’re constantly in a cycle of spending money you don’t have.

Taking a hard look at your spending habits to see if you’re veering into a problem zone is an important step to stop overspending. Here are some signs you might be headed in that direction.

1. You’re Behind On Your Bills

Life happens and you may miss a bill payment here and there. However, it’s not a good idea to ignore your bills.

As you fall further behind, it can be harder to catch up and be on top of your payments. Plus, not paying them is likely to result in a host of unpleasant consequences, from getting charged late fees to harming your credit score. It may even lead to having important services terminated, such as your water, electricity and even (gasp!) internet.

To help you stay on top of your bills, consider automating bill payments from your checking account.

2. You Don’t Have An Emergency Fund

An emergency fund is money you set aside specifically for emergencies, whether that’s for an unexpected car repair, medical bill or a home repair. Having an emergency fund is the best way to cover these expenses when they arise without further harming your finances.

If you don’t have money set aside, putting these types of expenses on a credit card can put you in financial hot water as interest charges mount.

Having an emergency fund as a financial goal is a smart idea. Consider looking at what you’re spending money on that you don’t really need — like unnecessary impulse purchases — and putting that in a separate savings account instead.

3. You’re Deep In Credit Card Debt

Yes, an emergency fund is vital to cover surprise costs, but that’s not the only way you might end up running up your credit cards.

Some months you end up with a variety of expenses – a night out to celebrate a friend’s promotion, a gift for your mom’s birthday, and then a new dress with a price so good you just had to buy it.

If you routinely spend more than you can afford on your credit card, you’ll start accruing hefty interest charges.

If you struggle to pay your credit card, you might end up damaging your credit score. Consider charging no more than what you have allotted in your budget each month, so you can pay it off before the new month.

What People Often Overspend On

Overspending can happen anytime, anywhere. The following are some areas where people more commonly overspend.

Housing

According to the Bureau of Labor Statistics (BLS) most recent Consumer Expenditures report, Americans spend an average $1,885 per month, or $22,624 per year, on housing in 2021. Though it can vary by location, the average spend on housing was about 34% of their budget. You can expect to spend more if you live in an area with high housing costs.  

Aside from budgeting rent and mortgage payments, you need to consider other costs such as utilities, repairs and home maintenance. Plus, you’ll need to factor in how much your mortgage costs each month — if interest rates are high, you’ll end up paying more.

Food

We all have to eat, right?

Just because food’s considered a necessity, doesn’t mean it should be used as a reason to overspend. Whether it’s too much takeout and delivery or impulse buying high-priced items at the grocery store, it can be easy to overspend on this category.

According to the BLS, 12.4% of American expenditures in 2021 were on food. Today’s numbers may be even higher considering the rise of food costs due to inflation.

To help combat overspending on food, consider cooking your own food and choose grocery stores with lower price points. It may also be worth considering generic and sale items and meal planning around these ingredients.

Other suggestions include eating less meat, buying in bulk when it makes sense and avoiding going to the grocery store when you’re hungry. It’s amazing how quickly treats and other high-priced items jump in your cart when you are.

Transportation

Whether it be for mass transit, car payments or other vehicle-related expenditures like gasoline and car maintenance, transportation is another big line budget item. The BLS found that Americans spent an average of $10,961 on transportation in 2021, making it the second largest budget item after housing.

If you’re in the market, consider buying a used car instead of a brand-new car or lease and opt for a car without all the bells and whistles that can drive up prices.

Depending on where you live, you can consider using public transportation a few times a week or find ways to drive less (like biking or carpooling), so you’re not spending as much on gas when running errands.

Random Impulse Buys

Even if you can well afford all the major budget items above, if you spend without a care, it could land you in financial hot water.

Yes, it’s fun to go out with your friends and buy more than what you had on your list at your local department store. However, these amounts do add up.

Psychological Reasons For Overspending

Aside from rising costs, there are several psychological reasons you may be overspending, including:

• Social media: It’s easy to get caught up in wanting what others have when you’re constantly scrolling and seeing what other people have or do.
• Peer pressure: Do your friends try to talk you into buying a new outfit every time you go out, or propose lavish restaurants or trips? Having a budget will make it easier to stick to your guns when someone suggests you buy something you know you shouldn’t.
• Emotional shopping: Do you love to do a little online window shopping when you get home from a tough day? It might seem like a healthier alternative to eating a tub of ice cream, but it’s damaging to your wellness in its own way – your financial wellness, that is.
• Binge shopping: Having a budget that’s too restrictive can push you in the opposite direction, often leading you to go wild and overspend. It’s the same way a solid diet of broccoli and chicken can make a pizza look so appealing.

How To Stop Spending Money: 6 Easy Ways

There are several methods to reduce spending, including using cash or watching out for signs of impulse shopping.

1. Create A Budget You Can Stick To

Take a look at what you’ve been spending on in the last few months to determine where you can cut back and where you can’t. When creating your budget, make sure to factor in “fun” purchases and a buffer in case you do make some impulse purchases so you’re not totally restructuring yourself. Otherwise, you’ll rebel, defeating the purpose of budgeting in the first place.

2. Use Cash Instead Of Cards Or Payment Apps

Using cash can help you keep your spending in check because when it’s gone, it’s gone.

One tactic is to use the cash envelope budgeting method. With this method, you put cash in a separate envelope you have allocated for various categories, like entertainment and groceries, and spend from each envelope only for things that fall in that category. It’s a visual reminder you better cut back, like on groceries, when the specific envelope starts feeling thin.

3. Be Careful With Impulse Buying

Being aware of your tendency to impulse buy is one of the top ways to save money. Otherwise, your daily coffee and snack or pack of gum at the checkout counter can add up faster than you think.

Some impulse purchases do even more damage to your budget, especially when you shop online at night or when you’re bored or lonely. Make it a habit to have the money in hand before you buy those new shoes or speakers. Or give yourself a 30-day rule. If you still want it in 30 days, then buy it. You’ll enjoy them a lot more if you don’t have to worry about paying for them.

4. Pay Off Your Debt

Paying off your debt frees up your budget. The more your debt grows, the less you’ll even have to spend. It could lead you into a cycle of getting further into debt, especially if you keep needing to rely on credit cards.

There are several ways to pay off your debt, including cutting back on spending, refraining from using credit cards or refinancing loans when you can to a lower interest rate.

5. Set A Monthly Savings Goal

Having savings goals can help you set aside money, whether it’s for an emergency fund or other aspirations, such as paying for a family vacation without using debt.

Consider starting small and set up automatic payments to a separate account when starting out on your savings journey. Having a reason for your goal will also help keep you motivated.

6. Reconsider Subscriptions And Memberships

Memberships and subscription services can add up. It doesn’t make sense to keep ones you don’t use, like gym memberships, so cancel those subscriptions first.

FAQs: Understanding And Resisting The Urge To Overspend

There is a lot to learn about how to stop overspending. To help you dive into the topic further, here are some commonly asked questions.

What is the best way to stop overspending?

The best way to stop overspending is to track your spending and cut back where you can. Creating a realistic budget, tracking your spending and using cash is a great visual way to see where your money is going.

What causes overspending?

Some reasons for overspending include not budgeting, spending too much on major line items, impulse spending and psychological reasons, like peer pressure and emotional spending.

The Bottom Line: Master Your Spending Triggers To Cut Back And Save

The cycle of overspending can be hard to get out of, but the relief you feel when you do is worth it. It won’t take too long to figure out these new habits – like avoiding impulse purchases and sticking to a budget – can be easier when you focus on the real goal – a healthy bank account and more peace of mind.

An effective tactic to stop overspending is having more visibility into your money. Get the Rocket Money℠ app today to see what’s happening with your money, set up automatic bill payments and manage subscriptions.