Living On a Budget Without Overspending
Overspending. Who Me? Try Living On a Budget.
credit card balances that have been slowly increasing. Would living on a budget prevent that?Most of us have asked ourselves that question on numerous occasions, sometimes in disbelief. We never dreamed that it would be possible, until we look at our
Usually, overspending is not a conscious effort. It could start with something as simple as meeting friends on the way to work for a latte. Your cash is spent so you just charge the drink, no big deal.
A couple of times during the week, the same friends suggest that you have dinner with them. You are shocked when the credit card bill arrives and you add up those unplanned charges that total $320.00.
You didn’t realize how easy it was to overspend without being aware of it. Now how do you tell your friends that you can’t afford these luxuries and must begin living on a budget?
Here are 5 basic reasons why we overspend
- Peer pressure – We know how that feels, don’t we? The lattes mentioned above are a perfect example. The friends mean well, but oftentimes are overspending themselves. Others have no idea if you can afford it or not, and you’re too embarrassed to admit it.
It’s very difficult to admit to your friends that you can’t afford that lifestyle and are living on a budget. Usually, the only way out is to bite the bullet, and honestly tell them that your current expenses won’t permit it.
- You really need to feel good – Your work schedule and tight money has you all stressed out. Plus the job demands and schedules have you to the point of exhaustion. You feel that you deserve a break from the frustrating routine, so you go out and buy that expensive suit you wanted.
You then decide to go out with your friends and enjoy yourself for one night. Well, you really felt good until the dreaded credit card bill came in and you saw several hundred dollars in spending that you couldn’t afford. You know that you have to stop this overspending, and soon.
- No budget – You’ve been avoiding that horrible “b” word and can’t see why you should be living on a budget. How can a latte on the way to work or a night out with friends make a difference? You remember how quickly those items added up and now realize that something must be done. Creating a budget will track your spending and you’ll be able to see what you can and cannot afford.
- Keeping up with the “Jones” – This is probably one of the main reasons why so many overspend. Their friends and/or neighbors buy new cars, furniture, or a home, and we feel that we have to have it as well. We reason that this friend has a comparable salary to ours, so if they can afford to buy something, so can we.
What we don’t see is that maybe that friend is in debt to their eyeballs and is on the verge of bankruptcy. By living on a budget, we’ll find ways to buy the things that we can afford while at the same time be reducing and eliminating debt.
- Spending addiction – This last listed reason is a sad one. There are some individuals that just become addicted to spending and can’t stop. It’s similar to a gambling addiction and can be very difficult to control. Anyone that is unable to control their spending and has spiraling debt, needs to get competent professional help.
Debtors Anonymous may be able to help
A program similar to AA called Debtors Anonymous, has a twelve step program to help debtors that have this spending problem. As we mentioned earlier, overspending uses all available cash and ultimately leads to some form of debt, usually credit cards with high rates of interest.
This debt must be repaid with the high interest, and paying the minimum payment each month isn’t going to cut it. As an example, let’s use the average new college graduate. We won’t consider their average student loan for $37,000.00 yet, only the average credit card debt of around $3,000.00.
Let’s use a student who was more careful and only accumulated $2,200.00 on his credit card. The interest rate is 18% and he only pays the minimum payment of about $40.00 each month. No additional purchases are made on the card.
Any idea how long it will take to pay off the balance of $2,200.00? I heard someone guess five years. Would you believe ten years? In addition to the $2,200.00 balance, he paid $2,480.00 in interest. Wow! What’s more, it is considered consumer interest and is not deductible on his tax return.
That is a type of debt that you should do your best to avoid at all costs. We mentioned the $37,000.00 in average student loan debt that a new graduate carries from college. Some financial professionals consider this to be “good” debt, and maybe in some cases, it might be.
There are formulas that are used in student loans such as the total student loans should never exceed the first year starting salary. However, with the current student loan crisis, there appears to be conflicting opinions. A lot of students are having problems getting a job in their degree career field, and are saddled with student loans that they are unable to pay.
Most individuals have to finance cars and also their home, but in my opinion, buy what you can afford. Forget what your neighbor bought. Create a good workable budget and make a concerted effort to pay off all debt as quickly as you can, beginning with credit cards.
By living on a budget, you’ll be able to include a savings plan for an emergency fund. You will also include saving for retirement and also debt reduction and elimination.
An accountant and tax preparer by profession, Gust’s true passion lies in his company blog titled “HBS Financial Group, Ltd.”. Through this venue, he not only tries to teach individuals about budgeting, money management, and taxation but he writes the majority of the articles as well.