It can be hard to avoid the allure of an impulse purchase, whether it’s a bargain in the sales or an online offer that is too good to miss. But it can be far too easy to spend beyond our means — leaving us with little cash at the end of the month.
Even the most financially savvy of us can occasionally waste money on unnecessary items. However, understanding the how and why behind overspending can help us break the habit — so here are five of the most common reasons why we do it.
The ‘what the hell’ effect
The “what the hell” effect is a type of bias first coined by dieting researcher Janet Polivy in 2010. According to Polivy, it describes the kind of thinking: “What the hell, my diet’s already broken, so I may as well eat everything in sight.”
Although it’s a scenario many of us who have tried to cut out sugar or fatty foods will recognise, it can also be applied to our spending. When we’ve broken into a £10 or £20 note, we are far more likely to spend the rest of the change unnecessarily.
Essentially, once we’ve cheated a little bit, cheating a bit more doesn’t count — because you might as well. Unfortunately, the only way to tackle this is to be stricter with yourself and to exercise greater self-control, which can be easier said than done.
Easy access to credit
Credit cards, loans, and other forms of credit are very easy to get hold of, either by filling in a short form or a simple online application. Although it can feel like free money, having access to this additional credit can encourage people to spend far more than they can afford to pay off.
If you rack up a balance that you don’t have the cash for when it is due, you may well be charged interest. That interest will continue to build up until your balance is paid off and whatever items you charged to the card in the first place may well end up costing you more. In addition, overspending on credit cards can negatively affect your credit score.
With so many deals on offer, it can be hard to resist treating yourself now and again. However, problems can arise if you find yourself unable to stop buying things — and if you can’t resist being drawn into sales and offers.
Research suggests that as many as one in 20 people in developed countries may suffer from shopping addiction, otherwise known as compulsive buying disorder. “While many people like to shop during time off, at weekends, or during seasonal holiday periods such as at Christmas, shopping addiction involves an overwhelming urge to shop and subsequently spend until it begins to adversely affect your life,” the healthcare provider the Priory explains.
“This may include overspending and taking out several store credit cards in order to be able to purchase items, even if you may be aware that this could incur long-term financial debt.”
Underestimating how much we spend
Budgeting means taking note of exactly how much you earn, how much money goes on rent, bills, travel, and food, and how much is spent on less essential items. However, it’s easy to overlook the small purchases — particularly if we pay for them using contactless cards.
Whether it’s a coffee, a magazine or a snack, we tend to forget about the small expenditures — but they can often add up, leading us to underestimate just how much we are spending each month. Keeping a money diary can help keep track of these purchases and how much we’re actually spending.
Even the most careful of spenders can overdo it on special occasions, such as Christmas or birthdays. According to research by the insurance agency Bobatoo, the temptation to overspend increases at Christmas, with 44% of respondents saying they would go slightly over budget and a further 10% admitting they would overspend by a significant amount.
One of the reasons we spend too much on special occasions is because we fail to estimate exactly how much they can cost — and how many of them we have. Planning ahead and putting money aside for birthdays or Christmas throughout the year can help. It may also be worth having a separate savings account specifically for these occasions too.