Do you make a decent salary but can’t cover your bills, in debt or living paycheck to paycheck? If you frequently find yourself being short on cash– even with a hefty bonus or overtime pay, then, there might be something wrong with your spending habits.
The average adult makes 35,00 choices each day, and many of those choices involve personal finance decisions– from getting out of bed, going to work, morning coffee, a trip a grocery store, not exercising, bad food choices- which can increase healthcare spending and so forth. Spending money is always a personal decision.
According to NerdWallet’s 2018 analysis of American household debt, the average credit card debt is $6,929 with revolving balances. The study reported that the number one reason for getting into debt was emotions– more people are overspending money on unnecessary things they cannot afford, with stress, sadness, and excitement being the top emotions associated with overspending.
Emotions can be linked to almost all debt and financial troubles– from choosing a house with a big mortgage, an expensive car, the latest gadget and so forth. Luxurious goods can bring feelings of self-worth, acceptance, and status in the world. There is nothing wrong with occasional splurges but– spending more than you earn can lead to years of being stuck in the cycle of overspending and poverty.
Many people can admit to emotional eating– being stressed, bored, or sad. Pleasurable food can temporarily fix those emotions but, emotional eating can affect your weight and health. Similarly, emotional spending is just as bad. It can leave you in debt, an empty bank account and fear.
Solutions for emotional overspending
Here are some common reasons for emotional overspending and solutions to deal with overspending.
Competition: Since our caveman days, the social class system has always been present. It was easy to guess a person’s economic status from their clothing, home, neighborhood and other materialistic items. Sadly, this concept hasn’t changed and society never really moved on. Many people shop out the desire to compete with others, and they buy things they don’t need to impress people they don’t like. The drive to compete can take over, which is recognized as a threat of being ‘left behind”. Or, in other words, if you don’t buy the latest product, you will be left behind in society. Buying things out of competition and trying to appear “well-off” will leave you broke and the only way to win the game is not play. An example can be seen with black friday– it is the biggest shopping day of the year. Flash sales indicate “limited number of items” available and many people wake up early and shop and win.
Here is how to deal with your competitive streak and quit buying things to ‘keep up’ or impressing people.
- Impress yourself: Spending money on unnecessary material possessions will only make you feel better in the short term, and your future self will not be impressed. You will not be able to reach your financial goals. Instead of trying to keep up with your friends (or enemies) stash away some money in your savings account and invest in yourself– professional skills, career or starting a business, instead of materialistic stuff. In a few years, you will glad you did.
- Financial Security: Having more money is rewarding– why would you want to get rid of it? New cars, clothing, and shoes will depreciate and lose value. Having extra money in the bank for emergencies offer security that will help you to sleep better at night.
- The grass isn’t always greener on the other side: Expensive car, big home, flashy clothes, and vacation doesn’t always mean people are happy or their lives are better than yours. You never truly know people situation and what goes on in their personal lives. Many people compare their lifestyle and wealth to peers and as a result, make unnecessary purchases.
Advertising: With the rise of technology, advertising can affect your emotions without a trip to the shopping mall. Companies pay thousands of dollars to advertise new items, trends, and experiences on the internet– which can be tempted to splurge. Retailers have many tricks to persuade you to spend money. For instance, free shipping, following you around with “reminder ads” and the “limited time offer.” From birth, humans are attached to “things,” and retailers use emotional advertising by allowing you to test a product before purchasing, such as trying on a piece of clothing before purchasing or testing out the latest technology in store, this makes you feel that the item already yours. Or free food samples in supermarkets, which is a nice gesture. But, it creates reciprocation and you will be inclined to make a purchase. Otherwise, you will feel guilty.
- Solution: Avoid shopping traps by unsubscribing from daily emails and sticking to budget and shopping. The jargon signs such as “save 50%”, extra coupons and promotions can trick your brain and you will save money by spending. We all need to shop but to avoid overspending, it is necessary to identify “needs vs. wants.” Necessary purchases are: food, housing/utilities, basic clothing, and transportation.
Retail Therapy: According to a Spring Shopping Survey, 96% of adults and teens admit to participating in retail therapy to cheer themselves up when dealing with stress, fear, sadness or to improve their mood. Shopping is a happy experience, and the body releases dopamine and excitement over new purchases, which fades within less than 48 hours. According to a survey from Bankrate, 60% of Americans cannot pay an unexpected $1,000 emergency expense but, spend an average of $1,652 per year on retail therapy.
- Solution: Find an alternative way to feel better such as, listening to music, talking to a friend, writing/starting a blog, exercise or a creative hobby (photography, drawing, singing) which is proven to increase your body dopamine level– without breaking the bank and, you can even make money from these hobbies instead of spending.
Credit Cards: As of March 2018, Americans owe a total of $1.027 trillion in credit card debt. People spend more money using credit cards versus hard cash. E-commerce stores like Amazon and iTunes store your credit card information to make purchasing easy with just a few clicks, which can lead to overspending and more credit card debt.
- Solution: Delete your credit card information from shopping sites. This will make things more challenging and time to reflect whether or not you really need the item. Another way to keep your spending under control is to take enough cash to cover in-store purchases. This will allow you to focus on essentials, instead of wants. Credit cards can easily allow you to overspend because of available funds.
Food: According to recent BLS statistics, Americans spend an average of $7,729 per year on food with $4,363 for “home” groceries and $3,365 for dining out. It is very easy to overspend money on food with mindless grocery store trips, eating out with friends and buying pre-made/pre-cut food– since time is a precious commodity for many people. According to researchers, the hunger-spending phenomenon can apply to all types of shopping– whether online, food or clothing shopping. An empty stomach can increase your desire to acquire things and being hungry means you are more willing to pull out your credit card and spend more money.
- Solution: Eat a snack before participating in any shopping activity and maintain regular meal times to avoid making rash decisions driven by hunger. Using cash also prevents overspending money on food and by removing your credit card from delivery apps. Each day, Americans waste nearly a pound of food. To avoid wasting food, you can get organized before hitting the grocery store by creating a meal plan for the week and using a shopping list.
- Another way to avoid overspending on food is by cooking at home. The average American household spends more than $3,000 per year on dining out. An entree at a restaurant can cost about $30, and the ingredients from the food only cost $10– eating out at restaurants is more expensive because you are paying for service, labor and business expenses. You can enjoy those fancy meals and special occasions for less by asking friends to bring potluck dishes and by using discount coupons to cook your favorite meals at home.
- Prepared meals and take-out deliveries can also cost alot. Most of the time Americans are too busy or unmotivated to cook at home. The average person does 18 take-out meals per month, which includes multiple UberEats deliveries to the office, dinner pick-ups or home deliveries. These meals can cost an average of $12.75, not including delivery fees and tips. Avoid overspending money on food by cutting down on grab-and-go meals or even your $5-a-day morning Starbucks habit, which could save you $150+ a month. Instead of grabbing take-out, bring lunch from home and cook dinner.
Social Media Image: Unfortunately today, many people overspend money for “likes” on social media. According to Chase Slate survey, 77% of millennials make purchases on clothing, vacations, and food to post on Instagram. Millennials are “image-conscious,” and they grew up witnessing many people becoming famous on the internet and as a result, they can spend an average of $137 to achieve the perfect Instagram post– with hopes of getting opportunities to become a celebrity. Spending money on social media image isn’t always a bad thing and with any great business plan,” you have to spend money to make money,” and it can allow you to eventually make money from endorsements and “sponsored posts.” However, many people get carried away, going into debt and mental issues from trying to impress people on social media.
- Solutions: There are many ways to maintain your social media presence without spending money–such as showing your vulnerable and authentic self, life’s progress and imperfect life. Followers would much rather feel a connection, instead of featuring your latest purchase and exotic vacation in which they cannot afford. Be mindful about spending money on your social media image– emptying your bank account on vacations and materialistic stuff just for likes and impressing people won’t last. Social media platforms will not be around forever, and there will always be the ‘next big platform”. Long term goals such as buying a home, financial stability, education and learning new skills should be your priority. Money should be spent on stable investments.
Many people are emotionally controlled by money and assume that money can buy everything in life such as product, services, convenience, luxury, and comfort. However, those are all false beliefs and the more a person accumulates, the more empty they feel. Emotions can drive materialism and consumerism, and without financial literacy, many people are trapped in the emotional spending cycle.