Overspending is one of the most common reasons why people are stuck in a debt spiral. If you find yourself scrambling for money at the end of each month, you may not be handling your finances well and spending beyond your means. While there are many financial marketplaces like Paisabazaar.com to guide you towards the right financial product and budgeting tools that help you plan your monthly expenses, curbing over-expenditure and adopting healthy financial habits is only in your hands. It is not easy to recognize your own pattern of overspending and it might take time to understand why you might be running out of cash every month. Here are a few signs of overspending to look at.
Common Signs of Overspending
Your credit card bills are higher than your monthly income
If you earn Rs. 50,000 a month but your credit card dues total up to Rs. 80,000, you are clearly using credit recklessly. Your dues should always be lower than your monthly income so that you can make all the payments timely and, at the same time, have some amount left for other financial responsibilities. You should also be able to save a portion of your monthly income, which would not be possible if your dues exceed your earnings.
This might lead to a situation wherein you would be able to pay only the minimum amount due on your card, which would lead to finance charges on your outstanding amount along with the new transactions attracting interest from the first day. Paying minimum dues, even for a few months, can result in a debt spiral, which would be difficult to get out of.
Your credit cards are maxed out
Credit cards give you additional purchasing power and it is not a bad practice to use them regularly, as long as you are able to clear all your dues timely. However, if you have multiple credit cards and utilize more than 90% of the credit limit on each of the cards, this may be a sign that you are resorting to credit to fuel your monthly expenses. Using too much credit will not only increase your Credit Utilization Ratio (CUR) resulting in a lowered credit score, but could also make it difficult to clear your dues on time.
You can never stick to your budget
Creating a budget is a good financial habit but you should also be responsible enough to follow it. If your monthly budget does not add up, it is a clear sign that you are overspending. Budgets should ideally include essential expenses as well as a certain amount for miscellaneous spends. If you splurge too much on non-essential categories, your essential payments will have to suffer, or you may have to resort to credit to pay for it.
Your expenses rise with your income
Though it is natural for your lifestyle to change as per your income, you should not start splurging more when you have more money at your disposal. A higher income should open more avenues to save and invest instead of putting more clothes in your wardrobe. If your expenses are rising in tandem with each of your salary increases, you may need to take a step back and look at your buying patterns.
Related Read: Top 5 Reasons Why People Go Bankrupt
How to Curb Overspending?
The journey towards financial discipline begins with admitting your bad financial decisions. Once you realize that you are overspending, here are some concrete measures that you can take to curb this behaviour:
Stick to your budget
As said above, creating a budget is important but what is even more important is sticking to it. Take a look at your last year’s purchases and note the things that you actually needed and the things that you bought on impulse. Also, pay attention to high-ticket purchases like electronics, luxury items, etc. This will give you a clearer look at your impulsive purchase, which you can avoid in future. Set aside an amount for your emergency fund or towards saving and then use the remaining amount for your fixed and variable expenses.
Set Short-term goals to curb overspending
If you have been putting major expenses on your credit card, stopping them altogether may not be easy. To get a better hold on your expenses, you can set short-term goals like not buying anything above Rs. 5,000 for 15 days, not ordering food for 2 weeks, etc. If you think your expenses go overboard due to small UPI payments that you make on a regular basis, you can switch to cash for some time. Once your shopping impulses are under control, you can start with bigger objectives like saving at least 15% of your monthly income or saving for an international trip.
Remove your cards from online shopping platforms
Adding your card details on online platforms make it easier for you to make payments when you go back to the same website for a new purchase. However, this convenience can also lead to impulse buying. Removing your card details from some of the platforms will make it slightly less convenient to make the purchase and might keep your away from overspending.
Reward yourself for your achievements
Becoming financially responsible is truly an achievement, even more so if you have struggled handling your money in the past. Hence, it is important to reward yourself for small things like limiting your spends to be within budget or not making unnecessary purchases for a month. However, while rewarding, you should not go overboard with the expenses.
Finally, you must remember that a habit does not change overnight. You would need to keep working towards smarter money management. Monitor your miscellaneous expenses and know when to draw the line. Setting financial boundaries for yourself goes a long way.