We live in a consumer oriented world. Spending is what drives industry. The more purchases made, the more money flows into business so they can make profits and still have money to produce better products for the consumer who buys them.
This works well in a positive economy when jobs are available and everyone can afford to buy the things they need including the luxuries. But when the economy sours, jobs become scarce and people need to cut back to preserve their standard of living. Unfortunately, a booming economy deceives many into believing that the good times will always continue. When the economy takes a nosedive, many have formed spending habits that too often leads to financial ruin.
There are a number of reasons why overspending occurs. Let’s look at some of them.
The Lack of a Budget
In poor economic conditions, a budget is a necessity. Without a budget the chances to overspend is vastly increased. Many people buy because they believe they have the money to cover their purchases. Often they are shocked to realize that they didn’t have nearly enough to cover the purchase as they thought.
Lack of Discipline
When faced with making a purchase, many people rationalize their purchase. They know they don’t have enough to cover what they buy, but they simply “must have” the item. Emotion takes precedence over reason. Impulse buying is what gets many families into trouble financially. Too many purchases are based on emotions rather than discipline.
Lack of Savings
In the old days before easy credit, families saved up for the things they wanted. Before anyone can spend, there has to be some savings in place to cover expenses. Unfortunately, many people spend far more than what they save. Just as soon as they cash in their income, the income has to service increasing debt. More spending leads to a spiral to financial ruin.
Easy Use of Credit
Credit cards have their place. They’re best used for covering emergency expenses or paying for online or mail order products. Essential items such as food and clothing make credit cards a useful resource. Unfortunately, many people use them for everything they buy, whether or not those products are necessary. What many people fail to realize is that overspending occurs well after they’ve bought the product on credit. Overspending is found in the high interest rates they pay when the bills can’t be paid in full at the end of the month.
Keeping Up Appearances
If the neighbors sport a brand new Lexus, you must have one too so you can project the image that you are just as wealthy. But keeping up appearances can be devastating financially, especially so when you witness your neighbor’s home being foreclosed on. You can be assured that you won’t be far behind in keeping up appearances with your bankrupt neighbor!
Believing the Advertising Hype
Advertising is a science devised to part you with your money. It’s very effective in playing on your emotions and clouding your reasoning skills. Many people simply buy even though they don’t really know why they buy what they buy. They just saw something on television and they were hypnotized to buying that advertised special.
All these factors can lead to overspending. While a good economy allows for adjustments to overspending habits, today’s economy is guaranteed to bankrupt many before they have the chance to make frugal changes. Knowing why you spend can help prevent the pitfalls too many people find themselves in.