Psychological Reasons for Overspending: Are You Guilty of Any of These?

July 7, 2021

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Overspending. We’ve all done it.

But what causes people to keep reaching for their wallets even though we know overspending is damaging to our financial security?

The average American will make 12 impulse purchases a year, costing them $276 per month. Impulse buying is what causes overspending.

Overspending happens when you spend more money than you can afford. The consequences of overspending are debt and financial struggles.

Luckily, we’ve put together this guide to help you understand the psychological reasons for overspending and ways you can gain back control of your spending.

Psychological reasons for overspending

Is overspending a mental disorder? Money disorders such as overspending are not considered as a mental disorder, however it can present itself as other mental health issues such as depression or anxiety.

What is overspending a sign of? Overspending is a sign that you don’t have control over your finances and impulse buying is taking over your judgment.

Here are the most common psychological reasons why people overspend.

Stress or emotional shopping

Why do we overspend? The first psychological reason you might overspend is based on how you’re feeling.

If you’re in a bad mood or had a stressful day at work, you naturally want to find something to cheer you up. You may think that retail therapy is harmless, but that rush of satisfaction you feel after buying something will soon wear off and leave you feeling worse. Add to it the stresses and worries of debt if you’re overspending and you’re in a worse place than you first started.

Peer pressure and influence can be hard to ignore, especially when it comes to shopping. On top of that, Facebook and Instagram ads won’t do your bank balance any favors.

When hanging out with friends, it can be fun to discuss your latest purchases and show them off. But if most of your conversations revolve around shopping and spending money, it could be a sign that you’re overspending. Being around other people can encourage you to buy items that you wouldn’t buy if you were shopping on your own. For example, if your friends are buying new pairs of jeans because they are on offer, it’s natural to want to be part of that.

To flaunt status

Another common reason people overspend and buy things that they can’t afford is to “look good” or compete with others to look more successful. Another example of buying to flaunt status is people who have to have the latest iPhone or car, even though their current ones are perfectly fine and they can’t really afford them.

Overspending to impress others is dangerous because it’s not worth the negative impact on your finances, and the debt that you will be paying off for months or years to come.

Easy access to money

Psychological reasons for overspending also include how easy it is to buy things that you can’t afford. All you need to do is reach for your credit card.

Many people don’t take the time to budget or consider how much money is available in their accounts. Instead, money is borrowed on credit cards or loans to fund a lifestyle that isn’t real.

Scarcity

If you can’t resist shopping offers such as “limited time offer” or “only two available for this price”, you’re not alone. The scarcity principle is an economic theory that explains the price relationship between supply and demand. Basically, the less that a product is available, the more desired it becomes. The fear that the desired product will become unavailable is the psychological reason people give into temptation.

These claims might or might not be true, but shoppers feel a sense of urgency to buy which leads to overspending.

How to stop uncontrollable spending

These psychological tricks will help you stop spending money.

Create a budget

Spending in moderation is fine, but too much of it is bad for your financial health.

Taking a good look at the amount of money you earn compared to what you spend is an important first step. Seeing how much you overspend on clothes, technology and other luxury items could be the wake up call that you need.

Create a spreadsheet or use a budget planner to list your income and expenses. Next, allocate spending categories and assign a proportion of your salary to each area. The 50/30/20 budgeting method works well for people who overspend because 30% is allocated to the fun stuff, such as shopping. 50% is used for necessary expenses and 20% for savings. The important part of budgeting is that once your funds for that month have gone, you can’t spend any more in that area until the following month.

Look for alternative ways to make you happy

Don’t let emotions drain your wallet. If you’re feeling down or stressed and need a pick me up, don’t go to the mall. Instead, go for a walk, read a book, listen to music or do something else that you enjoy. Avoiding temptation is the best way to overcome the psychology of overspending, and there are plenty of ways that you can avoid the shop that doesn’t involve overspending your hard-earned money.

Don’t take your credit card

Everyone should treat themselves now and then. If you can afford it, buy that new outfit or piece of technology. Credit card addiction is a serious issue. The problems with overspending with credit cards occur when you borrow money to do your retail therapy. Leave the credit card at home and learn how to avoid overspending when the temptation is too much.

Clear your inbox

A simple way to avoid temptation is to unsubscribe to the emails that offer you promotions and the latest deals at your favorite stores. Just because the items are on sale, doesn’t mean you need them. Opt-out of these emails to take back control of your finances. Out of sight, out of mind.

Delay your purchases

Create a shopping wishlist so that every time you see something that you want to buy, make a note of it.

Give yourself at least 24 hours to think about the items on your list. Ask yourself questions such as “Is this actually something I need?”, or “Can I afford this?” will help you take away the main cause of overspending, impulse buying.

If you’re shopping online, leave the item in your cart and take a break away from your phone or laptop. If you’re at the mall with friends, come back to that store later. Sometimes, walking away from a purchase is enough to make you realize you don’t really need or want it.

Try a no-spending challenge

If you really want to get your overspending under control, try a no-spending challenge.

For example, you could:

Stop buying clothes for 60 days.
Only pay for essential items such as groceries and utility bills.
Cook at home rather than dining out.

A no-spending challenge can help you identify what you overspend money on. Once you know the triggers it’s easier to decide how you will avoid them. These types of challenges can be tough for people who overspend, but making it into a game can help keep you on track. You could even introduce a penalty if you slip up such as contributing an extra $10 to your savings pot or donating to charity.

Gain control of your finances

When you know and understand the causes of overspending and how to stop overspending money, you can fight back and do things to help you change bad financial habits. So next time you go shopping, put our tips into action and avoid overspending.From budgeting to making money and saving, The Finances Hub has the resources you need for the best, and most useful, personal finance information.