Modern technology has made it easier to make purchases anytime and anywhere, whether you're using a debit card to shop in person or a credit card to make purchases online. Simultaneously, the cost of living for most Americans has increased significantly in recent months.  

An increased opportunity to spend, paired with higher prices, means consumers may face an increased risk of overspending—which often stems from impulse purchases that result in adverse consequences, such as crippling credit card debt or a lower credit score. Below, we'll discuss how to identify overspending while also sharing actionable tips to help you keep things in check.

How to Identify Overspending

Identifying overspending begins with taking an honest account of your spending habits. Look for these telltale signs of overspending: 

• Difficulty prioritizing expenses: In general, the biggest portion of your spending should be used to cover basic living expenses—which includes building your emergency savings fund and saving for retirement. If luxuries and impulse buys are prioritized over saving for your future financial goals, this may indicate overspending.
• High credit utilization: Overspending can lead to using more money than you're receiving each month, often resulting in increased use of credit cards, and thus, more debt. Using a large portion of your available credit each month may indicate that you're overspending.
• Impulsive spending: Often, people who overspend are simply not aware of how much money they spend each month. Building a budget can help you track all of your income and expenses, which can reduce the likelihood of overspending.

Consequences of Overspending

Left unchecked, overspending—like many bad financial habits—can have severe consequences. Spending too freely may result in a credit card balance you can’t pay in full at the end of the month, leading to ongoing debt that may be difficult to pay off due to the high interest rates on most credit cards. A high account balance also has the potential to lower your credit score, which may make it more difficult to secure additional credit. 

Overspending can also have personal and social consequences. Carrying debt can contribute to stress and anxiety, affecting your relationships and mental health. A low credit score may make it more difficult to work towards milestones, such as planning your dream wedding, buying a home with your loved one or saving for a child’s education.

How to Prevent Overspending

To avoid overspending, you must conduct an honest analysis of your spending habits, as well as set some financial goals to ensure that you are using your money purposefully:

• Make a budget and a shopping list for necessities—and stick to it. Taking a more regimented approach to shopping can help curb impulse purchases.
• Keep cash on hand. Those who find themselves making frequent impulse purchases may be better served paying with cash instead of a credit card. Keeping cash on hand can naturally limit your spending ability by ensuring you don't spend more than what you've already allotted for the week.
• Spend only what you can afford. Take an honest look at your income and how much you can feasibly afford to spend each month. In general, avoid going into debt on consumer purchases, such as home goods and clothing that aren't essential. When you do take on debt for larger things, such as purchasing a home, a car or pursuing an education, calculate your debt-to-income ratio to help determine how much you can reasonably afford. 
• Organize expenses into categories and track them. Mindful spending requires understanding your monthly expenses and analyzing how much goes to necessities and how much goes to luxuries.
• Track weekly savings. In addition to tracking your expenses, also note how much money you’re saving on a weekly or monthly basis. Regular saving helps you build financial security, which can ultimately protect you from future debt and financial stress.
• Automate savings. Setting up automatic transfers from your checking account to your savings account makes saving feel easier since you don’t need to manually transfer funds from each paycheck. This can help combat overspending by automatically removing the funds from your checking account before you can spend them.
• Set specific, personal savings goals. While any amount of saving helps build financial security, it’s helpful to create specific financial goals for yourself. These might include saving for a down payment on a first home, building up your emergency fund or saving for a family member’s education.
• Develop or refine your retirement savings plan. Creating a retirement savings plan and prioritizing your financial future provides a sense of purpose for how you use your money, which can help you avoid overspending.

Prioritize Your Future

Ultimately, becoming mindful of the way you use your monthly income is the key to avoiding overspending. No matter what your financial goals are or what your personal budget looks like, becoming conscious of where your money is going—and assessing how well that aligns with your long-term goals—can help you reduce the mindless spending or impulse purchases that often result in overspending.

Busey offers several tools and resources that can help you overcome bad spending habits, such as our eBank Money Manager, Home Budget Calculator and full suite of Financial Pathways complimentary online modules—which are full of tools, tips and resources that can help you build a strong financial future for you and your family.

This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.

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