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Overspending 101: Learn How to Spend Money Wisely

December 19, 2019

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Have you ever wondered where all of your money has gone? You’re not alone. A Varo Money survey found that most Americans — a whopping 69% to be exact — have had to dip into their savings to make it to their next payday on more than one occasion. Living above your means and not knowing how to spend money wisely is more common than the latter.

If you earn a stable income but still struggle to stay afloat financially, one culprit might be as simple as regular overspending. So, how can you get back on track and learn to save rather than spend? Tackle these four steps and learn to save money you’ve always had but haven’t managed.

Take stock of your spending habits

The first step to any change in your financial life is always to sit down and assess your money situation. If you have a feeling that you’re overspending each month, there is probably a very good chance that you are.

Some signs that you’re overspending are neglecting your bills and opting to spend money on fun expenses, or carrying a balance on your credit card, and struggling to make minimum payments.

Before you can adjust any spending habits, you need to have a solid understanding of what money you have coming in each month, and where that money goes.

The easy part about this task is writing down how much you earn. Most people are well aware of their paychecks unless they have a rollercoaster income. If you have a rollercoaster income, it’s a good idea to average out your earnings over the past three to six months.

Now, the difficult part of your financial overview. How much do you spend each month? If you’re not sure where to start, check your statements over the past three months to see what your typical spending categories are. You’ll need to account for fixed and variable expenses. Fixed expenses are bills that do not change month over month, such as rent, groceries or transportation. Variable costs are any expenses that fluctuate and aren’t essential to your day to day life, such as Uber Eats, takeout coffee or clothing.

Once you have these numbers sorted, it’s time to do some basic math. Don’t panic. All you need is a calculator. Take your monthly earnings and subtract them from your average monthly spend. This calculation will tell you if you have any money left over, or if you are overspending.

From there, an excellent option to get a clear picture of your current financial standing is to determine your net worth. Your net worth is your assets subtracted from your liabilities. Assets would be anything you own of monetary value or your savings accounts. Liabilities would be any debts or loans that you may carry.

Get to know what you value

If your goal through this short but sweet financial journey is to learn how not to spend money, one way to accomplish this goal is by learning what you value. Take a few seconds to jot down the answers to the following three questions:

  1. How do you like to spend your time?

  2. What do I regularly purchase that makes me happy?

  3. What do I regularly purchase that doesn’t spark joy?

Just because we spend our money a certain way, doesn’t mean it’s the right choice for us or our money. By getting to know what you value, you may learn that you aren’t spending your time or money in places that matter most to you. This is an excellent opportunity to decide what parts of your spending should be cut out or decreased. You

If you love to go out for dinners, but can’t afford to keep up this habit, consider setting limits for how often you enjoy this non-essential expense. Perhaps you limit your dining out to once a week or once a month. Not only will you save money, but you might also be able to enjoy this experience more as it isn’t as frequent.

Create a budget to curb overspending

Overspending is much easier than saving money. All you have to do is swipe your card or pull out some cash and move on. Saving takes more planning and patience. However, only one of these financial habits helps you. So, how can you hold yourself accountable to start making the right choices? It’s time to set a budget.

Since you’ve already done the hard work of finding out your income and expenses, a budget will be there to guide your spending and track where your money goes each month. Not only that, but a budget can be a great way to stay accountable to financial goals you’ve set – such as managing to overspend.

If your budget is for curbing overspending and learning how not to spend money, consider options meant for that purpose. One great option would be a cash-based budget that limits your spending on each category by merely restricting access to additional funds. If you are only allowing yourself to spend $20/week on coffee, once gone, you cannot spend any more money on coffee. Budgeting tactics like this can be straightforward but aren’t for everyone.

You can budget in a few different ways: whether it be through a more traditional tracking method like a spreadsheet, or you can opt for a modern budgeting tool like a free or paid app. Either way, give yourself around three months to adjust to your chosen budget, and then you can reassess to see if this option is working for you.

Don’t be afraid to do regular financial check-ups

Just like you go to the doctor every year or two to get a check-up on your physical health, regular money check-ups can be useful for your financial health. When it comes to saving and spending, you need to hold yourself accountable. If you find it difficult to control your overspending, consider finding an accountability buddy that you can call or text whenever you get the itch to spend money.

If you’d prefer to keep your financial life to yourself, set a phone reminder to go off as often as necessary as a way to stay on top of those moments of weakness. Spending money is typically tied to our moods and emotions. If you feel as though you are more likely to spend when you’re feeling down, try to practice the 24-hour rule when you go out to the shops, and give yourself time to think about the decision to spend before it’s too late.

Overspending can be, well, overwhelming.

If you feel like you need a quick and easy version of how to learn to spend money wisely, just keep these four simple steps in mind:

  1. Determine your monthly income and expenses

  2. Get to know what you value in life and money

  3. Set a budget and track your spending

  4. Find a way to hold yourself accountable to your financial goals

As soon as you realize you can take control of your financial habits by getting to know the numbers and learning about your values, tracking your spending is easy. By budgeting and doing consistent financial check-ups to hold yourself accountable, you might feel more empowered to be mindful of your money.

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