In a time when the cost of living seems to be increasing continuously, overspending can become all too easy. From monthly Direct Debits on a host of subscription services to overreaching when it comes to family birthdays or special occasions like Christmas, overspending can put strain on relationships, negatively impact personal well-being, and even affect your career. However, there are ways to address and overcome this issue.
In this article, we’ll focus on ways you can control overspending and learn how to budget.
What is overspending?
Overspending is a common habit that can be difficult to break. It’s a problem that can impact you on an everyday basis and have a knock-on effect on other areas of your life. The temptation to spend is everywhere nowadays. From online shopping to social pressures, it’s easier than ever to fall into the trap of overspending.
In fact, a 2023 Aqua Card survey found 89% of Brits who set a social budget each month exceed this by an average of £61. This may not seem a lot but it totals up to £732 over the course of a year. What’s more, 11% of households now owe money on Buy Now, Pay Later (BNPL) with the average balance at £866, meaning £2.7 billion is owed across the UK.
In worst-case scenarios, if you’re not monitoring your spending, this habit can lead to more serious financial issues. It can feel like you have no way out but that’s not necessarily the case.
How to avoid overspending
Overspending happens when you spend more money than you have, which can eat into your savings, increase your debts, or both. This usually stems from impulse buying, not sticking to a budget, or clearly not separating what you need from what you want. The consequences of overspending can be severe, including financial instability, increased debt, and the inability to save for future goals or emergencies.
To tackle overspending, you’ll need to follow a few practical steps designed to help you get a handle on your finances and make more thoughtful spending choices.
Audit your spending
The first step in addressing overspending is to understand where your money is going.
- Each time you buy something you don’t need, make a note of what you bought and how much it was. Adding up your purchases can help you to see exactly how much you’re spending.
- Make a checklist to help you work out whether something you want is just an impulse buy. Why do you need it? Could you get a cheaper alternative if you wait or go elsewhere? If you feel it’ll be another impulse buy, perhaps wait for 30 days before deciding.
Review your bank statements and credit card transactions for the past few months to identify your spending patterns. Look for areas where you might be spending excessively, such as dining out, shopping, or entertainment. This audit will provide a clear picture of your financial habits and highlight areas for improvement.
Create a realistic budget
Once you have a clear understanding of your spending habits, the next step is to create a budget that reflects your financial goals and limitations. Start by listing your monthly income sources and then subtract your fixed expenses, such as:
- Rent
- Utilities
- Loan payments
With the remaining amount, allocate funds for variable expenses, ensuring you set limits that prevent overspending while still allowing for occasional treats.
There are plenty of free budgeting apps which can help you track your spending without having to put a pen to paper or the old-fashioned spreadsheet method. Monzo, Revolut and Plum are among some of the most popular budgeting apps which are free to download.
You can also use MoneyHelper’s free budget calculator. This breaks down your income and spending into categories and asks questions that will help you set a realistic budget.
Plan your meals
Food expenses can quickly add up, especially when frequently opting for takeaways or dining out. Planning your meals in advance and cooking at home can significantly reduce your food expenses. Start by planning your meals for the week, creating a shopping list based on those meals and sticking to it. This not only helps save money but also encourages healthier eating habits.
Check your subscriptions – are you overcommitted?
With so many tempting subscription services now available, it’s easy to sign up for more than we need or even use. Take a moment to review all your subscriptions, from streaming services to gym memberships and ask yourself if you’re truly getting your money’s worth. Cancel any subscriptions that you no longer use or need, freeing up funds for other financial priorities.
Address your debts
If you’re dealing with debt, tackling it should be a priority. High levels of debt can lead to a cycle of overspending as you struggle to keep up with payments. Consider strategies such as the debt snowball method, where you focus on paying off your smallest debts first, or the debt avalanche method, which targets debts with the highest interest rates. Reducing your debt can free up more of your income for savings and investments, breaking the cycle of overspending.
Can a debt management solution help?
For those struggling to manage their debts, debt solutions such as Individual Voluntary Arrangements (IVA) or Debt Management Plans (DMP) may offer a way forward. A DMP is an agreement between you and your creditors facilitated by a debt management company. It allows you to make one affordable monthly payment, which is then distributed among your creditors. While a DMP can help simplify your payments and potentially reduce the amount you owe, it’s important to consider its impact on your credit score and ensure it’s the right solution for your situation.
An IVA is a formal, legally binding agreement between you and your creditors to pay back debts over a specific period. If your debts are over £6,000 and you have a steady monthly income but find it hard to meet your monthly payments, an IVA could help you manage your debts by setting up a more affordable, fixed monthly payment.
By taking control of your spending habits through careful budgeting, mindful spending and addressing debt, you can work towards a more stable financial future. Implementing these strategies can help you avoid the pitfalls of overspending and ensure that you’re making the most of your hard-earned money.
See our Saving & Budgeting guide for more tips on how to stop overspending.
