About 50% of Americans have less than $250 left over at the end of each month, after covering their expenses, according to a 2021 survey conducted by The Balance. 12% of Americans are out of money at the end of the month.
Overspending occurs when you spend beyond your means. In some cases, it may be abnormal behavior, due to job loss or unexpected expenses, such as a medical bill. However, with over 25% of Americans failing to pay at least one bill each month, it’s worth understanding why we overspend and how we can wean ourselves off of it.
Why do we spend too much?
There are many reasons behind overspending.
Problem: Scheduling failed. One of the main reasons is not planning ahead. Spenders without a budget are less in tune with what they are able to spend while considering their bills and living expenses. This means that impulse purchases are more common, increasing your expenses, but your income remaining the same.
Solution: Budget! This is a very simple yet effective method to help reduce overspending. These days, you’re spoiled for choice between apps and companies trying to help you. With free budgeting apps downloadable to your smartphone, you can categorize and track your spending, pinpointing where you need to cut. You can also set reminders for yourself to pay your bills and, on some more high-tech apps, create automatic withdrawals from a savings account. Try free apps like Mint and Honeydue to see how you can change.
If the apps aren’t your thing, you can create a manual spreadsheet. Document how much money you earn and how much you spend. Label what you spend, then assess where you could save.
Problem: High Cost Borrowing: Many Americans are turning to loans to help cover their expenses. More than 191 million Americans use credit cards, which are interest-free if paid on time, but start accumulating when not paid back, with current US credit card debt rising to $910 billion in December 2021.
There are also 12 million Americans who use payday loans on an annual basis, often carrying interest rates of 300% to 500% APR – and although they are effective for short-term cash flow problems , the costs of these loans skyrocket if individuals find it difficult to repay them. and also have a negative impact on your credit score.
Solution: Borrow sensibly. When borrowing, you need to consider all of your options and choose the one that best suits your current situation. If you need a line of credit with low or no interest, consider getting a new credit card. Many offer 0% interest introductory programs, such as the Citi Simplicity Card.
Problem: high energy cost. 20% of Americans could not pay their energy bills in 2021. With rising inflation putting pressure on the cost of energy, bills are rising and with it, expenses are rising.
Solution: Pay attention to the use. It may seem intuitive, but there are many ways to reduce energy consumption. For example, turning off your laptop or desktop at night can reduce how often you need to charge it. Cumulatively, this could save you tens of dollars per year – per device! You should also avoid turning on a half-full dishwasher and using energy-efficient light bulbs. LEDs are the most efficient and can save you hundreds of dollars in energy (and bulb replacement!) every year.