Three signs you’re overspending — and how to stop it for good

Household overspending is one of the most common causes of financial insolvency. Unfortunately, it’s also one of the easiest to overlook.

Overspending tends to creep up slowly and camouflage itself as a different kind of financial challenge. We’d rather blame the unexpected car repair than acknowledge we’ve been saving less and less for emergencies. We’re more likely to notice the higher interest charge on our credit card bill than remember that extra dinner out.

But it’s not all bad news. Because once you know the symptoms, they’re almost impossible to ignore. And you can eliminate overspending almost entirely by introducing just three straightforward techniques.

Increasingly living paycheque to paycheque

There are numerous reasons you might find yourself delaying normal purchases or bill payments until pay day. But if the delays seem to be getting more frequent your bank account balance seems to be shrinking between paycheques, your spending habits almost certainly require deeper scrutiny.

The solution: Create a budget and use it consistently

A budget can be extremely helpful for planning, tracking, and optimizing your spending. It won’t increase your income, but it can help you stretch your current earnings a whole lot further. Here’s how:

1. Birds eye view — A budget paints your complete financial picture. It reveals whether you’re currently able to make ends meet and what it will take to help you get ahead financially.
2. Identify obstacles — A budget helps you understand what expenses and spending behaviours are contributing to financial difficulties, and how you can change them. This may include cutting down on discretionary spending (e.g. dining out) or negotiating lower fixed expenses (e.g. auto insurance).
3. Measure progress — A budget forces you to track your spending and progress over time. This helps you reflect on your challenges (e.g. online shopping) and use your growth as motivation to keep trying.

If you’re new to budgeting, we have an in-depth overview here and a free spreadsheet template here to help you begin.

Unable to save consistently

Are you saving at least 10 percent of your income to prepare for retirement, protect against any unforeseen costs, and support longer-term spending goals? If this is consistently a struggle for you, it might be a sign your spending priorities are out of alignment — and could potentially foreshadow more serious financial difficulties ahead.

The solution: Automate your savings and make it (slightly) difficult to access

The most effective savers tend to treat it like any other living expense. They pay themselves as diligently and consistently as they pay their rent or mortgage.

Use one (or both) of the following options to automate your savings:

1. Online banking — Most banks and credit unions allow you to automate certain transactions. You can use this functionality to transfer a pre-determined amount from your chequing account to your savings account every month or every payday.
2. Split your paycheque — If you receive direct deposit, your employer may be able to split your paycheque between two different accounts. Depending whether you’re paid a salary or hourly wage, you may request this be a specific dollar value or a percentage of your earnings.  

For added assurance, you might also consider opening a savings account at a different financial institution than you typically bank with. Request there not be a debit card connected to that account. This keeps your savings available but increases the number of steps required to access it — which may encourage you to think more deeply about your spending and reconsider any non-essential purchases.

Credit card balances keep increasing

Credit cards are a horrible way to borrow money. With average interest rates nearing 20 percent, so a small monthly balance can quickly spiral into an unmanageable debt. If you consistently find yourself charging more on your credit card than you can pay off every month, pay attention. This is a warning sign of severe financial difficulty ahead.

The solution: Create rules for credit card use

Credit cards are a convenient payment tool that can potentially earn you cash back or loyalty points while helping you build a positive credit history. But it’s easy to misuse them or underestimate the risks involved. Boundaries will help you take advantage of the credit card benefits while avoiding many of the pitfalls.

Following are some effective rules that can help prevent over- or misusing your credit cards, and prevent credit card debt from sneaking up on you:

1. Keep your credit card limit below your net monthly income
2. Pay off your credit card balance after every purchase.
3. Pre-plan your credit card spending and use it only for essential purchases (e.g. groceries , fuel)
4. Leave your credit card at home if you don’t have a specific plan or reason to use it.
5. Never use your credit card for an impulse or non-budgeted purchase.
6. Never spend more than 30 percent of your total available credit card balance.
7. Never store your credit card information on subscription or e-commerce websites.
8. Set up credit card transaction notifications through your online banking.
9. Freeze your credit card through your online banking until you plan to use it.
10. Check your credit card balance at least once per week.

Life-Changing Debt Solutions

Life happens. We all make mistakes, and we’re all affected at times by circumstances beyond our control. Help is available and a financial fresh start is possible — even if your debt due to your own or someone else’s overspending.

Contact MNP for a Free Confidential Consultation to learn your options today. During this no-obligation initial meeting, a Licensed Insolvency Trustee will review your entire financial situation and ask about your challenges and goals. They will outline all the potential options available to you and provide an unbiased opinion on your best path forward. This may include Bankruptcy or a Consumer Proposal or could involve a different solution altogether.

No matter what you decide, we will make sure you have all the information, referrals and support you need to address your debt and overcome it for good.

Based out of Toronto, Joel Kideckel is a Licensed Insolvency Trustee and Vice-President at MNP LTD. To learn more about how MNP Debt can help, contact our local office at 416.515.3922 or toll-free at 310.DEBT (310.3328).