For many Americans, overspending seems like a birthright. But, warns financial advisor and author Leslie Greenman, sooner or later, those bad spending habits will catch up with you. She explains why we feel compelled to overspend and provides advice for making 2012 the year you tighten your purse strings.
If you fear you’ll be ringing in the New Year with a holiday spending hangover, you’re not alone. In fact, studies show that many Americans will still be paying off their holiday debt months, and possibly years, after gifts have been exchanged. But let’s be honest. If overspending was a problem for us only once a year, most of our bank accounts would be much more robust. Unfortunately, the overspending psyche infects many Americans all year round.
Leslie Greenman says that if you’re prone to turning a blind eye to the reality of your financials then you’ve likely been hijacked by the psychology of overspending. She wants to help you curb your out-of-control spending frenzies in 2012—but first you must understand why you feel the need to splurge in the first place. Many of us have emotional triggers that lead to overspending. Understanding how the need for stress relief or the need to demonstrate your own self-worth can lead to overspending is essential in order to curb the dangerous habit.
“Women especially can have a tendency to take on a what-I-don’t-know-can’t-hurt-me mentality when it comes to spending,” says Greenman, a financial advisor and author of the new book Dating Our Money: A Women’s Guide to Confidence with Money & Men (AuthorHouse, 2011, ISBN: 978-1-4634-1740-6, $14.95). “We convince ourselves it’s okay to overspend because we’re celebrating a promotion or because we’re pleasers by nature and want to buy a great gift for our spouse or best friend’s birthday.
“And in today’s economy, we might carefully avoid the truth about our financials because we don’t want to feel ‘poor.’ After all, we convince ourselves, if I’m out shopping or if I’m buying a new car then I must have plenty of money. Meanwhile, you’re using a credit card to pay for your extended trips to the mall and taking on unnecessary debt to get that new car.”
Greenman encourages women and men alike to make a change in 2012. She says there’s no better time than the beginning of the new year to break your overspending habits.
“Once they’ve conquered overspending, I think most people will be surprised by how much they gain through saving,” says Greenman. “Sure, you may no longer be eating out every Saturday night and you might not be restocking your closet every month with new shoes, but you’ll gain the peace of mind that comes with standing on a strong financial foundation and you’ll be able to achieve big financial goals, such as buying a house, much more quickly.”
Read on for Greenman’s advice on how to better understand the psychology of overspending and what you can do stop it:
Get real about your financials. Sit down with your spouse at least once a month to have a heart-to-heart about your financials. Make sure you both understand what the budget will allow for in spending that month, and more importantly, plan out how you’re going to meet your saving goals.
“Look at how much you can realistically spend,” advises Greenman. “Too often, women think of the financial picture like it’s a black hole. Credit cards are a huge cause of this because they allow us to avoid the reality of debt. We can just whip out our credit card without taking an immediate hit in our bank account. But that has to stop. Now is the time to gain a clear understanding of the family financials. When you do so, you’ll be more inclined to control your spending.”
Establish an “Operation Saving” plan. Once you know what your budget is, start mapping out what expenses you can and can’t cut and set savings goals. Be very specific. If you buy Starbucks every morning, that has to be accounted for in your spending report. If you’ve been sneakily hiding clothing purchases from your spouse, then it’s time to fess up. The specificity will override the “vagueness trap” that allows us to fool ourselves about how much we’re really spending.
“The more specific your plan, the easier it will be for you to hold yourself accountable to it,” notes Greenman. “Set both short-term and long-term goals. For example, do you want to pay off a credit card over the course of three months? Do you want to save up for a special family vacation or set aside a certain amount in your children’s college funds? Having specific goals will encourage everyone to stay on the saving track.”
Don’t let the psychology of the sale get the best of you. If you’re a chronic overspender, sales pose a special temptation. When there’s a great sale, two factors are usually used to justify spending, explains Greenman. First off, we fear that if we don’t take advantage of the sale now we might not be able to get that item later. And secondly, most women love to feel like they’ve gotten a great deal when they’re shopping.
“Even if the on-sale item is still too much for your budget, you convince yourself that it’s okay to splurge a little in this case because the deal being offered is so good,” she says. “But let’s be honest. Going over budget is going over budget. It doesn’t matter what purchase is deepening your debt; just that your debt is increasing. So don’t let the temptation of great sales get the best of your budget. If an item is too much for your personal financial situation, don’t buy it.”
Get an accountability partner. Your accountability partner will be there for you whenever you have the impulse to overspend. If you’re married, your spouse could be your accountability partner and vice versa. If not, maybe your mom has always been a stickler when it comes to the family budget, or maybe you have a friend whose frugalness you’ve always admired.
“Check in with your accountability partner at least once a month,” recommends Greenman. “Knowing you’ll be going over your finances with that person will help you stay on track. And make sure your accountability partner doesn’t mind being on call whenever you want to splurge. Give him or her a call when a sale is tempting you or when you’re having trouble making a financial decision.”
Don’t shop when you’ve got the blues. Studies have shown that we’re inclined to pay more for items when we’re sad. Have you ever been down in the dumps and indulged in a yummy dessert or gone back for seconds of whatever your comfort food of choice might be? Well, the same emotional triggers that lead you to seek comfort through food can lead you to seek comfort through spending if you head to the mall instead of to your favorite restaurant.
“Just like overeating, buying stuff is a popular remedy for making ourselves feel better when we’re down,” says Greenman. “But I think we all know that the happiness we achieve through spending is fleeting. Soon we’re right back to being down in the dumps. My advice: don’t shop when you’re sad. Instead, curl up and watch a good movie or spend some time with a good friend or family member who has a knack for cheering you up.”
Invest in relationships, not in “stuff.” It’s perfectly natural to want to give back to those who give to you. It feels good to treat a friend to lunch or to see your son’s face light up when you agree to buy him the video game he wants. This satisfies the nurturing instinct in women, in particular. And it also helps us assuage the guilt we often feel for the shortage of time we have to spend with our loved ones. What we need to realize is that what other people really want, kids and adults alike, is to spend time with us.
“One of my friends is the ultimate ‘giver,’” says Greenman. “She will treat for dinners, throw lavish parties, and has even given my kids new clothes. The funny thing is, I don’t think she understands that I would be her friend no matter what. It has never been about her ‘giving’ me things. I just genuinely enjoy spending time with her. So the next time you want to win a family member’s or friend’s love through buying something, find a way to spend time with that person instead. Spend a day with your son doing the things he loves to do. Or suggest to a friend that you spend an afternoon catching up over coffee.”
Use cash! Consider this: The average American spends 12 to 18 percent more when they use credit cards versus cash. Buying on credit is a trap to be avoided if at all possible—and the best strategy for defeating temptation is to use cash whenever possible.
“If you use your credit card, whether it’s to pay for the week’s groceries or to put gas in your car, you’ll probably end up paying for your groceries and gas two or three times over in interest payments,” Greenman notes. “Bring only cash with you when you’re shopping, or at the very least, use your debit card or write a check. Reaching for your credit card to pay for something you wouldn’t otherwise be able to afford is no longer an option.”
Remember, small amounts add up to huge consequences. Sometimes you can overspend by missing opportunities to spend less. Do you and your family order sodas when you eat out? Do you buy coffee at a gas station or at Starbucks on the way to work each morning? Do you buy bottled water instead of using a filter to get it from the tap? If so, spend a moment filling out one of the cost calculators available online. The results will be eye-opening!
“The amounts you spend on these items might seem small, but they really add up,” says Greenman. “Let’s take a closer look at soda costs. At a restaurant, soda can cost between $2 and $3. If you’re a family of four, that adds up to almost $10 or more every time you go out to eat. But if you drink water at restaurants instead, you save those $10-plus dollars, and those savings can quickly add up to about $1,000 a year. The same opportunities for saving arise when you cut out the daily Starbucks run. I bring a thermos of tea with me to work every morning. One box of the tea I buy at the grocery store is the same price as just one cup of tea from Starbucks. When you cut out the small expenses that add up, you’ll have a significant chunk of change to put toward the family vacation fund or the new appliance you need.”
“If you don’t know the big picture of your current financial status, then kick off 2012 by getting a clear understanding of it,” says Greenman. “There’s never a bad time to start living more financially responsibly. Sure, you’ll have to make sacrifices, but trust me, those sacrifices will be made up multiple times over through the wonderful things you can achieve through saving and strengthening your financial outlook.”
About the Author:
When Leslie Greenman’s husband unexpectedly passed on at age 35, she suddenly became a single mother of two boys (ages two and four). Leslie learned how quickly life can change. She went into the financial industry to empower women with the knowledge and confidence to take action and be prepared. Through her tough experiences of becoming suddenly single, she realized how easily women can be misinformed and taken advantage of. Dating Our Money offers women the important information they need to confidently make smart choices with money and men.
Leslie is currently a financial advisor, author, and public speaker. She loves to talk to women and girls about managing money and making wise choices but can adapt a speech to meet the needs of any audience. She encourages people to remember that every decision counts! Buying soda at a restaurant could prevent you from saving thousands of dollars over a lifetime.
Through her book, Dating Our Money, Leslie’s goal is to make financial planning fun and relatable for all women.