Making ends meet has become a challenge for many Americans, with 42% reporting they aren’t able to live within their means, according to a recent study by Wells Fargo.
But what’s at the root of the problem? Experts say it’s about more than a person’s budgeting skills.
“Addressing overspending from a purely financial perspective is often insufficient. One must delve into the psychological dimensions of their spending habits to enact lasting change,” Khwan Hathai, a certified financial planner and certified financial therapist at Epiphany Financial Therapy, said in an email.
Why Are Americans Overspending?
Here are five common reasons experts say Americans are overspending.
1. Social Pressure
“The desire to ‘keep up with the Joneses’ can lead people to spend beyond their means,” Sherman Standberry, a CPA and managing partner at My CPA Coach, said in an email.
It can be tempting to buy what you see others buying as a way to signal that you can afford it, too — from clothes and cars to homes and vacations.
“Some may view spending as a form of social proof, associating material purchases with self-worth or status,” Hathai said.
Instead of trying to compete, focus on what’s most important to you and what you’d like to achieve in your life. “Having a clear financial goal in mind can help motivate you to stick to your budget,” Standberry said.
[Read: How to Save on Everyday Expenses.]
2. Lifestyle Creep
Lifestyle creep refers to a phenomenon that occurs when your expenses unintentionally creep up as your income increases. You may, for example, shop and go out to eat more often after getting a raise. As a result, despite making more money, your discretionary income doesn’t feel like it’s increased.
To prevent this, ensure you have a financial plan in place and revisit it whenever your income increases.
“Be honest about your necessary expenses and allocate the funds accordingly,” Standberry said. The aim is to be intentional about how you spend your money.
3. Emotional Impulse Spending
Many joke about retail therapy but it’s a very real thing.
Sadness is strongly associated with a sense that you’re not in control of the outcomes in your life, according to The Benefits of Retail Therapy study by the University of Michigan’s Ross School of Business. The study reports that shopping enhances feelings of personal control, which suggests it’s likely to alleviate sadness.
“Overspending is often more than just a lapse in financial judgment; it frequently signals underlying emotional or psychological triggers. For instance, some people may overspend as a form of escapism, temporarily distracting themselves from stress or emotional pain,” Hathai said.
She explained that by understanding the emotional triggers that prompt overspending, you can develop healthier coping mechanisms that don’t involve reaching for your wallet.
4. Not Accounting for Inflation
While inflation has cooled since peaking in 2022, consumers have been subject to the cost of all items increasing by more than 19% between 2019 and 2023.
If you don’t adjust your budget to account for cost increases, you’ll likely find yourself overspending each month. Standberry recommended using budgeting tools or apps to monitor where your money is going.
[This Is the One Thing Americans Refuse to Stop Spending On]
5. Credit Misconceptions
“The availability of credit can lead some people to perceive it as ‘extra money,’ leading to overspending,” Standberry said.
The truth is that you have to pay back every dollar you borrow, plus interest and fees. For credit to work in your favor, it can’t function as an extension of your bank account or a resource that’s required to keep you afloat. You have to pay down your credit card and loan balances or your credit score will suffer.
If you’re having trouble with overspending, Standberry recommended sticking to cash and debit cards so you’ll spend only what you have.
[SEE: 10 Best Budget Apps.]
How to Curb Overspending
“To gain control over spending and stick to a budget, the first step is recognizing these psychological patterns and how they affect our financial decisions. This self-awareness can then be leveraged towards developing a mindset that values financial stability and longevity,” Michelle Delker, a CPA and the founder of the William Stanley CFO Group, said in an email.
She adds that it can help to implement a budgeting strategy, like the envelope system, which helps you visualize your spending limits and gain more control.
“It’s also recommended to seek professional advice, not only from financial advisors but also from mental health professionals, as they can provide tools to manage the psychological aspects of spending,” Delker said.
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Inside the Psychology of Overspending and How to Stop originally appeared on usnews.com
Update 10/14/24: This story was published at an earlier date and has been updated with new information.
