After drawing up a budget I usually find that everything falls in line, I have plenty of excess money each month after I budget out for all my bills, savings, and other categories. I can use that excess money for saving, spending, goals, tithing it doesn’t matter as long as there is a place for it on the budget. The real problem is my bank account does not reflect this excess at the end of each month. Occasionally my wife and I have an issue with money that just seems to vanish. This phenomenon is called over spending and many Americans are guilty of it.
The Causes of Over Spending
Although I don’t have statistical data to back it up I think television and advertising is a large part of the equation. Have you wondered why companies spend millions of dollars on advertising each year? Just the Super Bowl ads cost multitudes more than regular prime time advertisements. You have ads on billboards, bus stops, buses, the radio, even our website has advertisements. Advertisements on the television and other places work, that’s why people spend more on things they don’t need. Have you noticed if you are watching t.v late at night you suddenly become hungry? Chances are you will hit food commercials, and they do look good!
Another cause of overspending is the relative ease in which most people can obtain consumer credit cards. The credit card companies offer you incentives to use their card, whether its cash back or reward points. How many people actually build up these rewards? Most people obtain a credit card with little knowledge on the proper use of one. They build up balances on them and neglect to pay them off in full, opting instead to pay the minimum balance. When you have a credit card there also seems to be less of a psychological connection with it. I know for myself it is far harder for me to depart with cash in my pocket than it is to pull out the credit card. This is why when I got shopping at the mall with my wife I leave the card at home and only bring the amount of cash we agreed upon spending.
Our Final, but surely not the last cause of over spending is that of emotions. There are many times we let our emotions get the best of us. My personal story, I was fresh out the military and doing some consulting. I had recently broken up with my girlfriend who at the time was my longest running relationship. I kept seeing her everywhere I went and it was starting to irritate me, especially when she showed up with other guy’s. What did I do, I went out and spent $26,000 on a BMW with hardly any money down. This was a bad financial mistake that I made but I still have the car and I still love it. I currently have over 135,000 miles on it and it runs amazingly. I plan on driving it at least another 3-4 years before even considering the purchase of another one. But the point of that story is I let my emotions drive my spending. I wanted to feel better and I did feel better but it was a temporary joy, once those payments hit some of that joy faded. Emotions can drive our spending in many ways. We will spend to keep up with the neighbors who just purchased that new 42 inch television. We make purchases because we want the best for our children. Occasionally we even become addicted to spending (shopping). I know a few people who are addicted to shopping, they have piles of clothing in their closets that still have tags on them. They let their emotions guide their spending, and this creates shortages each month.
Analyzing Your Spending
Now that we’ve explored some of the causes of overspending lets see if we can figure out where our money is going each month. The first part of analyzing your spending is to figure out what you are actually spending your money on. I won’t lie to you, this is tedious work that requires a great deal of organization. What you need is:
Your task, should you choose to accept it is to document every last expense. You will write down everything you spend money on from your morning coffee all the way to the 50 cent pack of gum. You will keep track of your expenses by writing down everything, and storing the receipt in your organizer. At the end of each week you will go through the receipts to ensure your records are good. After a month has passed you should have a decent amount of transactions written down in your notebook.
You will now take your transaction notebook and start going through it. Create categories such as dining, gas, clothing, household et cetera. You will find that at times it is hard to categorize things, to this I heed warning; Do not make a misc category and start throwing things in there, it tends to be counter productive. As you categorize and add up the values of spending over the paste month you will start to see trends forming. Perhaps you will realize that last month you spent over $150.00 on coffee each morning, and another $100.00 on coffee in the afternoons. It’s truly amazing how little things such as coffee can add up to a large amount over time. You will also find things such as every time you stop in the afternoon for a drink you also pick up a lottery ticket and a bag of chips. Your stop for a $1.50 drink just turned into $5.00, at the same time your waste line might be turning into something else!
Every Penny Counts
You may not realize it but every penny counts. Little things have a tendency of adding up relatively quickly and it’s up to you to nip that early on. In my opinion the best way to start decreasing your spending is in small increments. You don’t want to cut out all of your overspending the same day, it would be the equivalent of a person trying to stop smoking, drinking, and sniffing glue all in the same day it just won’t end well! What you should do instead is slowly decrease your spending by changing habits individually. You can apply the Try it For 30 Day’s method I’ve talked about before on TMM. After 30 day’s of trying something, you will pretty much make it a habit, then its time to move on to the next expense.
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[...] kept a log of all my expenses. I bought a small notebook and kept it in my car with me. After every paycheck, I put in the log [...]