Picture of a piggy bank and the blog title (how not to overspend and save money)

How not to overspend and save money

How to not overspend and save money

OCTOBER 11, 2017     AUTHOR: SHAUN

We need to be more thoughtful in how we spend our money and we need to ensure we’re saving adequately and consistently. We’ll get more enjoyment, we’ll have a lot less stress, and we’ll enjoy a greater sense of freedom.


The western culture we live in today is too materialistic, and we often live well beyond our means. The way we approach our spending is not sustainable.

It isn’t hard to come to this conclusion – look around you. We live in a society where the last years’ smartphone model won’t cut it. A car is no longer “luxury” for $45K. And almost everything is financed… sometimes well beyond its “useful” life.

I believe we need to change our financial mindset.

We need to be more thoughtful in how we spend our money. We need to have a good hard look at how we use debt. And we need to ensure we’re saving adequately and consistently. It’s all for a good cause. We’ll get more enjoyment out of our “things,” we’ll have a lot less stress in our lives, and we’ll enjoy a sense of freedom as we work to live rather than live to work.

Related post:  Learn how to pay yourself first and save more money

Unfortunately, a lot of us crave “more”

When did our spending problem start? It’s not an easy answer.

Maybe we’ve inherited it after 50 years of marketing messages that teach us tangible things create happiness.  That the idea that life should be better, richer and fuller with a bigger house, or car.

Or on the other end of the spectrum, maybe it’s just innate – we’re hardwired as consumers with a desire for more. More freedom, more space, more luxury, more stuff.

I’ll leave it to you to assign the blame.

Honestly, the cause doesn’t matter as much as how quickly it’s been escalating.  It feels like we will go to great lengths to consume more.

Why would an urban family want to use only one vehicle when they can have a commuter SUV and a truck? And all-inclusive vacations every other year seem required… after all you deserve it. And we’ll go to great lengths to make all those happen, even if it means taking on significant debt. 
 

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There’s good debt and bad debt

Now don’t get me wrong, not all debt is bad… without it, most of us could never afford a home. Sometimes you need access to money in case of an emergency. Outside of big purchases, there are also times we need to use to debt to invest in our future (like borrowing for school). Debt becomes a problem though when we take on too much, or we borrow to meet our day-to-day needs. This type of financing isn’t sustainable.

And the consequences are starting to appear.

Based on data from WalletHub, the average American family now owes $8,377 on their credit card.  I’m guessing it’s at a high-interest rate! It’s because of things like this that half of Americans said they either could not afford an emergency expense of $400 or would cover it by selling something or borrowing money (Bankrate survey).

If you’re borrowing to get by or financing every purchase, it’s time to relook at your financial situation. The good news is there are lots of resources to help provide support.

The solution is simple (but rarely followed!)

The first rule to building wealth is you should never spend more than you earn. Sounds simple. But in practicality, a lot of people don’t follow it. Why? They don’t know how much they spend in the first place.

When was the last time you tracked your monthly expenses? Take it one step further… Do you know how much you can spend before you’re digging into your monthly savings? Most people don’t think this stuff through.

It’s also vital that you ensure you keep a good buffer on how much you spend. For one, unexpected expenses creep up and you will need to pay for them. Secondly, you need to save money. Lastly, you need to be in a healthy position to be able to treat yourself when the time’s right. How can you do so without taking on debt if you’re always spending what you earn?

Now there’s no hard and fast rule on how much of a buffer you create. Based on my experience though, a 30% buffer on your spending limit is the smallest I’d recommend. Why 30%?

  • You need to save money (set aside 10% for long-term savings and 5% for short-term savings): You should get in the habit of paying yourself first, right off the top. If you automate this process, you can set it and forget it. Chances are you won’t even miss the money once you start a regular habit of putting it aside.
  • Giveaway 10%: As Americans, we are very fortunate. We live in the top 5% globally. As such, I believe it’s our duty to give back. Choose your cause, but by giving some money away, it’ll make you more humble and feel like money has less control over you. It’s not about how much you give, but rather a change in mindset on what role money has in your life.
  • Give yourself a 5% expense buffer: A well-structured budget will already have car repairs, and household expenses built into it, but we all know one-off things pop up. A 5% buffer should be enough to cover the minor unexpected items. Anything bigger can be covered by your well-stocked emergency fund.

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SWP Action Steps

No one has a perfect financial situation. We all can brush up on one thing or another. Whether you’re struggling financially, or already a regular saver, try one of the things below to get even further ahead:

  1. Simplify your life: Unclutter your house by removing the stuff you don’t need. Avoid buying unnecessary items. When you do spend your money, focus on buying things you’ll enjoy, use often, and are of high quality.
  2. Get clarity on your spend: Do you know where your money is going? Track it. Awareness is half the battle. You can only curb issues you know about, and I guarantee on some level you’ll be surprised on how you spend your money.
  3. Build a budget, or for experienced savers, take a different approach to budgeting: I know, it’s not sexy, but a budget does work. If you don’t have one, build one. And if you already have a budget, challenge yourself to reduce your biggest expense items. Be creative. Can you cut your cable bill to save money? Can you carpool, rideshare, or use public transportation? I’ve also found taking a more long-term view to budgeting helps to keep me on track, and will probably be helpful for you as well.
  4. Reduce high-interest debt: Create more capacity to save by paying down high-interest debt. Carrying a balance on things like a credit card eats away at your budget and if left untouched can grow exponentially. Keep these things in check by paying them down as aggressively as you can.
  5. Pay yourself first by setting money aside from each paycheck: Lastly, start saving. Remember the goal here is to save 10% for long-term goals (like retirement), and 5% for short-term goals (like an education fund). The easiest way to do this is by automating your savings from each paycheck. By putting aside a small sum right off the top, after every paycheck, you ensure that a piece of your hard-earned money always ends up back in your pocket. It’s also hard to procrastinate when it’s automated!

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Think it through

  • What is influencing your spending behavior? Do you need to change anything?
  • Do you have a saving-oriented mindset? What would need to change to make saving a priority?
  • What would you do differently if you were forced to save 10% each month? 20%?  30%?

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