Overspending: How can you avoid it?
Published on: October 15, 2019
We live in a time where it’s easier than ever to spend our money, particularly on entertainment. There’s a focus on the ‘now’, and embracing everything that life has to offer. In many ways, that’s not a bad thing, and it certainly means that in terms of our available lifestyle choices it can be argued that there’s never been a better time to be alive.
Where it does become an issue is when it comes to saving. We’re in a period where, for many young Australians, saving can be a problem. Challenges such as extortionate house prices and stagnant wage growth are not helping matters. With that in mind, it’s important to understand what it is about our behaviours that drives our urge to splurge.
I’ve written before about the impact of our behaviours on the way we approach money. Overspending fits into this category, especially in situations where you live from pay cheque to pay cheque. That danger of overstretching your income has a real effect; by overspending, you impact your ability to achieve the goals in life that you want.
So what are my top three areas to look out for when it comes to overspending?
Look beyond the horizon
While it’s always tempting to just focus on the now, you can also look at the longer term without ruining your plans for today.
The best way to do this is to understand your goals for the next 5-10 years. For example, do you want to own a property, either to live in or as an investment? Are you looking at getting married or starting a family? Understanding these goals is crucial, as for most of them, you can’t just flick a switch and be ready to go.
Once you’ve looked at the road ahead and what your goals are, we can start to examine your motivations, i.e., are you motivated enough to achieve these goals? It will take an adjustment to your spending but most likely not one as dramatic as you think. With the right plan and strategy, you can have the best of both worlds.
The end of easy credit
Something to also consider is the way accessing credit has changed. Most earlier generations, like Baby Boomers and Gen X, lived in a time when accessing funds was relatively easy. Nowadays, that situation has changed and is being accelerated off the back of events like the recent Royal Commission into Banking.
In layman’s terms, the banks are making it more difficult to access credit, i.e., to get a loan. In particular, you need to be able to show a history of saving money and living within your means. The days of being to fudge up your living expenses and have that applied to your loan application are well and truly gone.
Going back to my first point, this means that if you have life goals, like owning a property, accessing credit to do so is now much harder. It means that budgeting and managing your cash flow are more important than ever.
Watch your subscriptions
Living in the digital era, we now have access to more content than ever before. Streaming is the norm for TV, movies, music and many more entertainment outlets. We have internet and phone packages, plus subscriptions for digital content (like a newspaper), wine, and even food options, like Marley Spoon and Hello Fresh, just to name a few. It’s so easy to sign up: It seems inexpensive when you look at it monthly; for example, streaming can be $10-15 a month and your internet package at $69.95 doesn’t seem like a lot. That can change when you look at both the annual costs and the number of subscriptions that you have. The combined cost of subscriptions is not something many of us factor in upfront. It adds up and can be expensive.
I have two basic rules of thumb when it comes to subscriptions. First, look at the total cost, either yearly or for the length of your commitment. That’s a fixed cost that you need to pay, and you should take a mindset that looks at that total cost, not just the monthly amount. The second is to periodically check your subscriptions. You might be surprised to find a few that are still going when you thought you’d cancelled, particularly apps on your smartphone that charge a subscription fee. In fact, recent research suggests that 3 out of every 5 Australians are paying for a subscription they never use. It’s always worth asking yourself: Do I really need that subscription?
If you’re keen to understand why you overspend and to look at a better approach to cash flow management, book a 20 min consultation with our team to look at your specific circumstances.
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