Are you an ardent shopper with a penchant for high-end brands? Do you spend almost every Friday night and weekend out with friends partying it up? Are you a huge tech enthusiast who needs the latest gadget as soon as it is released? You could say yes to all these questions and still not be an overspender. On the flipside, you could say no to all these questions and be a chronic overspender. While many people are short on money or are prone to large, extravagant purchases, that does not mean that they are overspending.
Overspending, or spending beyond your means, is a serious issue faced by many young people nowadays, and one which comes with many adverse, long-term effects (such as bad credit history if they are unable to make payments on time). Oftentimes, it is only when you are deep in debt that you start to realise that you might have a spending problem.
Here are some ways you can identify whether you are overspending or not.
- Right off the bat, if your expenses are greater than your income, this clearly shows that you are spending beyond your means. While the best solution is to increase your income, that is easier said than done and more often than not, the problem can be traced back to poor spending habits. If you are tracking your expenses properly, you can identify your biggest expenses and cut down wherever possible. Don’t consider your fixed expenses as set in stone. If your rent is taking up more than half your salary, maybe it’s time to look at shifting to a more affordable place. Maybe cancelling a few subscriptions until you get your spending in check might come in handy as well. Analyse your expenses sheet and find out where you can trim the fat.
- You have no idea how much you are spending. If you don’t track spending meticulously, it’s a clear sign that you have poor spending habits. Further, there’s also a good chance that you are leaking money in ways that you don’t know. A few extra hundred rupees a month charged by a service provider grows into tens of thousands a year at the end of the day. If you aren’t already, beginning to track spending will provide a world of insight into your financial habits that might come as a surprise.
- You are constantly pulling out money from your savings to fund non-essential purchases. Unless on rare occasions, you should never touch your savings to fund your daily purchases, especially if they are non-essential. Having to resort to spending your savings proves that you are spending more than your income.
- Having no savings or emergency fund. Ideally, everyone should be secreting away a few thousand a month into a savings account, as well as creating a separate emergency fund. The emergency fund is to tackle any unexpected expenses (such as major household repair or a medical emergency) without drying out your savings. If you are unable to save even 5% (at the very least) of your monthly income, you need to take a hard look at your expenses and start to cut down.
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Money management is a point of contention among many people. Some may argue that money comes and goes, and that money is meant for spending, while others advocate for being conservative with your spending and preparing for a rainy day. Regardless, not having money when you really need it is the worst feeling and you may find yourself looking to borrow money. Avoid being in this situation by being careful to avoid overspending.