How to stop overspending money? [Financial Calculator]

All of us go shopping to purchase essential entities. But sometimes we may be tempted to make additional purchases. Spending money on necessary goods is fine. But overspending money on unnecessary commodities should be controlled. At times we may encounter alluring discount offers that are hard to resist. Or several buy one gets one free offer that is redundant. Thus, we may get tempted to go against our monthly budget. The modern shopping trend has trapped every consumer with its claws of publicity. Therefore, very often, consumers cannot resist themselves from making these purchases. But don’t worry, I’m here to help.

Through this article, I will lead the readers through ways to stop overspending. So that you can start winning the battle against temptations. The topics discussed in this article are as follows. How do you know that you are overspending? What are the motives behind overspending? What are the various methods that should be adopted to prevent overspending? The importance of a financial calculator. How does a financial calculator work? These are some of the concepts that will enrich the knowledge of every reader.

How Do You Know That You Are Overspending?

1. The Expenses Surpass The Budget:

The budget is a plan that many individuals follow to maintain financial discipline. But just setting a budget isn’t enough. People should follow it and track their expenses. If your budget permits expenditure of Rs.500 on the clothes for a month. But you end up spending Rs.800. The utilization of the additional Rs.300 is a question to be raised. So how is the surplus money generated? It is the excess money that is spent apart from the budget. Unnecessary expenses will harm other expenses during the month. It is a clear illustration of overspending. 

2. Utilizing The Credit Cards To The Maximum Limit:

Many individuals rely on credit cards for many of their daily purchases. But the only disadvantage here is people lose track of their expenses in the long run. They may not realize that they are nearing the maximum limit of credit. It is the result of living an unsustainable life. The fact that we own a credit card makes us feel that we own the whole bank. But this is not the case. We barely posses the money but borrow it. This means that the borrowed amount draws interest. Reaching the maximum limit notifies us that we have overspent on our purchases.

3. You Can Only Afford To Pay Off The Bare Minimum From Your Credit Card Debt:

After making numerous transactions through the credit card, the balance is generated. If the budget is tight, then you may not be able to pay off the debt. This is an implication that you have overspent in the previous month. As a result, your current budget permits you to make the minimum payment towards the pending debt.

4. The Debt Generated Through The Credit Card Exceeds The Monthly Income:

In case the monthly income of an individual is Rs.50,000. But the pending credit card debt is Rs.80,000. It implies that you have been seriously overspending. The monthly sources of income should have been higher than the debt to pay it off. But instead, overspending through the credit card has put you in debt.

5. Your Focus More On The Luxury Expenses By Neglecting The Daily And Future Goals:

You should always pay before playing. Every individual should understand the importance of meeting day-to-day expenses. It includes fixed and variable expenditures like bill payments, recharges, EMIs, debt payments, etc. Besides this, planning and saving for future goals is also of paramount importance. But instead of focusing on these goals, you find yourself enjoying by making luxury purchases; then, you are overspending on redundant entities.

6. The Expenses Increase With Income:

Promotions, bonuses, tips, and additional incentives lead to raise your monthly income. If this increase in income follows a rise in expenses, they are consuming the extra that’s generated. It is another indication of overspending. When the lifestyle-based expenditures of an individual increase just because of a sudden increase in the monthly income.

7. You Have More Possessions At Home Than Your Bank Account:

If the net value of the entities at home is more than the amount in your bank account, then this is a financial disaster. Many of us may be crazy about shopping or food. Hence, we do not realize that many times we may overspend on satisfying our cravings. It lands us in a situation where the bank balance is less than the purchases we have made.

8. You Do Not Like The Idea Of Change:

While reading the article, some of us may find ourselves doing the same. Overspending the monetary resources in our day-to-day lives. For some overspending, money brings happiness, a sense of fulfillment, and importance. But they fail to realize that they are on the wrong route. Some may have a clear justification for overspending and be rebellious to a change. But there is no excuse for overspending. It is a sign of an unhealthy financial life. Since they are opposed to this new change, it becomes a hurdle towards attaining a stress-free healthy life.

What Are The Motives Behind Overspending? 

There are several reasons for spending money. Some are intentional, but others are not. For instance, while planning a monthly budget, individuals do not include the room for overspending. It happens unintentionally due to various factors. But we can blame ourselves for five reasons below.

1. Social Media:

Today, social media is an influential tool. Several advertisements are posted on every website we use. Besides ads, people post several details about their recent purchases. These are purchases that have made their lives better or increased their standard of living. Even though others have made many purchases, it does not imply that we should too. Several bloggers may brag about the latest trends, modern technologies, and recent upgrades. Such irresistible deals make it hard to prevent expenses. Therefore, social media is one of the major networks that leads people to overspend their money.

2. Carelessly Spending Money:

Some may be drawing a high salary. But if we do not know how to manage our funds, then we will run out of money. Another reason behind overspending is improper budgeting and not tracking the expenses. Many people do not make a monthly budget to track their expenses. Thus, they spend recklessly without thinking about the future. Carelessly spending money just because the monthly income is high is not a good practice. By doing this, we are only depleting our cash reserves. And then we may not have any savings left for the rainy days.

3. Shopping:

Some people are addicted to shopping. They have no control over their greed for purchasing new items. They see the latest stock that has arrived in the market, and it is out of stock before the coming month. Compulsive spending is a huge problem faced by those who earn a lot. These individuals do not give thought to their financial goals. They just live in the present to purchase and worship the latest goodies.

4. Lack Of Self-Awareness:

Our mindsets are the key to controlling the urge to overspending. But if the consumers themselves are unaware, then that’s a huge issue. Every individual should be aware of himself. They should know their needs and wants. Self-awareness is the reason behind maintaining control of our wants. One should know how to safeguard from making tempting purchases. They should motivate the mind to save money rather than overspending it.

5. Debit And Credit Card Payments:

When we make online payments thorough electronic transfer, we cannot physically see the cash. Thus, we do not realize the pain of losing money even though we overspend. Many times, individuals spend even more than they should be though online transactions. It’s easy to shop online but hard to realize the value of money. But when we physically pay the bills with the crisp notes, then we understand the pain that comes with losing money. 

Ways To Stop Overspending

1. Create A Budget:

A budget is the main strategy that will help us prevent overspending. Everyone should have a budget to track expenses. Once you have allocated a job to every penny then, you will know where your money is going exactly. Here are a few steps to get you started with the budgeting process. 

• Start a spreadsheet- If you have a PC or a laptop, then use Microsoft Excel to create a spreadsheet; otherwise, a paper will also suffice. Make columns to categorize different expenses and the types of income.
• Sum the monthly sources of income- Make a list of the primary and secondary sources of income. It should include salary, bonuses, tips, and secondary income from rent, and so on. Add the monthly income.
• Collect the bills- Gather all the monthly bills for payments like mortgage, credit card, and other utilities. Make a separate category for the fixed expenses in the excel sheet.
• List the variable expenses- After tabulating the fixed expenditures, focus on the variable ones. It includes spending on entertainment, groceries, clothing, and so on. Try predicting the net worth of these expenses based on past expenditures.
• Saving some money- Besides allocating money to meet expenses, make provisions for saving it. It is a crucial part of a budget. A good budget will always ensure savings for the rainy days. To save money, implement the 50/30/20 rule. It means that 50% of the monthly income should be utilized to meet expenses. 30% of the money should be used to fulfill your satisfaction and lifestyle. And the remaining 20% should be saved or used to pay off debts. The remaining money can be invested in any financial tool. It includes a savings account, fixed deposits, mutual funds, and so on.
• Test your budget- While planning the budget, leave spaces after every expense. At the end of the month, fill up these spaces by entering the actual amount spent on meeting the expenses. It will give you the correct approximation for future use. Compare the numbers and adjust the budget for the next month. Make sure that you do not repeat any mistakes in the future.

2. Budgeting And Tracking Expenses;

Affordability is the main criteria before making purchases. We should set the limit of affordability by budgeting. While making a budget, the expenses should be categorized into three parts. They are daily expenses, future goals, and luxury expenses. 

• Daily expenses- These expenses should occupy the highest spot in the budget. It includes monthly bill payments for electricity, DTH, grocery payments, mobile recharges, and so on. One cannot fail to meet the daily expenses as they are the means of our survival.
• Future goals- Once the budget meets the daily expenses, then the future goals follow up. These are the funds that are saved for the future. Some may intend to purchase their dream car in the coming two years. So, the savings for making this purchase should start at the earliest. The emergency fund is also another necessity that should commence creating a corpus in times of crisis. Every individual should set his own financial goals according to his priorities. Once these are fulfilled, the next is luxury expenses.
• Luxury expense- Once the daily expenses and the future goals are met, the remaining money from the monthly income can be used for satisfying one’s desires. It means that the actual savings should be greater than the required savings. So, the calculation of the luxury expenses is as follows: if the actual monthly savings of an individual are Rs.15,000. But his monthly expenses after fulfilling the daily expenses and investing in future goals come up to Rs.10,000. This means that his luxury expense comes to about Rs.15,000 – Rs.10,000 = Rs.5,000.

3. Switch To Cash:

Making payments through cash is better than online transactions. Once the budget is made, stick to the plan. Keep the cash separate for meeting different expenses. Grab a bunch of envelopes and label them accordingly for different categories of expenses. Put the allocated amount as per the budget into the envelope.

4. Keep Track Of How You Spend Money

Monthly budgeting and expense tracking are the only ways to maintain financial stability. This way, you will be able to refrain from unnecessary expenditures. Therefore, individuals should set their minds towards the budget and spend money according to it. Once you are getting the hang of living life according to the budget, then you won’t have to worry about overspending. When you are making a budget for the first time, make sure to include all the basic needs. It is inclusive of food, shelter, clothing, and transportation. The expenses on dine-outs, Netflix subscriptions, and shopping will cease the overspending of the budget.

5. Make The Budget Work For You

The budget is a simple strategy. It involves the planning of how to spend money. Initially, it may not be easy to cope up with the new budget. But within a few months, you will become an expert in dealing with it. The working of a budget is simple. You tell every single penny you own what to do and where to go. This way, your money doesn’t control you, but you control the money. Follow the zero-based budget, which means the difference between the income and the expenses is zero. It is achievable by making sure that the hard-earned money is gone in the intended place and not elsewhere.

6. Monitor Your Shopping Style

Supermarkets are the worst place to shop for household items. One may enter the mart to purchase toothpaste and a packet of milk. But leave the mart with a purchase of Rs.200. So how did the purchase of toothpaste and a pack of milk sum up to Rs.200? The answer is simple: the buyer got tempted to make additional purchases. En route to purchasing the intended items, he encountered several other products at the sale. He couldn’t control his urge to buy the items at the sale and ended up purchasing those too. This impulsive spending is not healthy. Regular impulsive spending can become a habit and lead to overspending in the long run. Therefore, individuals should be determined while shopping. They should carry a list of the items for purchase or avoid shopping at marts or supermarkets where bulk shopping persists.

7. Prevent Expenditures At Restaurants

Food is the fuel to our body. But there is no reason why we should overspend on ordering this entity. There are many ways to get food. Some may prefer food cooked by their mothers, whereas others may like fast food. But fast food also leads to the immediate depletion of money. Many food courts, famous fast-food outlets, online food ordering system, restaurant food are not cheap. They are pricy and sometimes overpriced.

In a day, we may spend thousands of rupees just to satisfy our appetite. If the daily bill sums to Rs.2000 (inclusive of breakfast, lunch, and dinner), then the weekly bill will be Rs.14,000. It is a lot of cash just to fill our tummies. But what if we restrict to home-cooked food and reduce the dependence on fast food and restaurant food? Then we will surely save a thousand bucks that may have wasted otherwise. Include the grocery expenses in your budget, instead of unplanned dine-outs. I’m not asking to abstain from restaurant food completely. Don’t deprive yourself of a nice dinner occasionally. And a Sunday brunch maybe a treat that you deserve for all the hard work put in thorough out the week.

8. Stay Away From Sales

Shopkeepers know their customers well. They know exactly how to attract their customers through various deals and discount offers. Therefore, they can successfully cast an alluring spell on them. A discount of 25% is available on beautiful curtains that we do not intend to purchase. But just because the item is available at 25% off, we buy it. But remember that you are still spending 75% that was not your intention. These shopping traps prevail everywhere. Avoid these traps by coming prepared before shopping. Make a list of items to be purchased, be aware of your budget, and maintain self-discipline while shopping.

9. Get Rid Of Pending Debts

These debts may be a result of availing a loan or from credit cards. Today many banks offer various loans to their customers. Home loans, joint home loans, educational loans, car loans, and so on. But why is there a need to borrow money? People avail of loans because they do not have enough to purchase the entity by themselves. Loans provide us with financial security. But is it real? It’s not, in reality, we do not have the money to purchase expensive assets. People do not do realize this. They feel that loans are the solution to something that they cannot afford. In reality, it’s not debts steal from your income.

The same thing goes with credit cards. They make us feel that we own the money. The next moment we are struggling to pay off the loan and its interest. Thus, we must save ourselves from these financial struggles. Otherwise, we will be overspending a lot on paying these debts for the rest of our lives. So, make it a point to make payments with cash and try not to avail loans.

10. Fulfill Your Desires When You Can Afford It

After making a budget, many of us will have to stick to the new routine and give up on our desires. But this is a part of saving money. We may have to compromise with something or the other. If your budget does not permit you to purchase a new toy set for your children, then don’t buy it. Try to purchase it when you can afford it. But for the time delay, the purchase. It will enable you to establish control over yourself. Many times, you may ask yourself, “Do you need it?” If the answer is yes, then adjusting your budget and compensate for the purchases in the coming month. But make sure that you don’t drift apart from the budget.

11. Accept The New Challenges To Reach Your Goal

Test your limits by purchasing only the necessities for a month. Are you surprised by the amount of money you saved? Similarly, set new targets every month. You will surely benefit from such challenges. By doing this activity, you will realize how much you need. It will also make you aware of all the areas where you used to overspend unnecessarily. Such money habits will surely bring a lot of relief from any financial stress.

12. Train Your Mind Using A Financial Calculator

The mind should be trained to tackle overspending. Our thoughts are usually aligned in a particular direction. To curb overspending, we need to inform our minds that we are overspending. A financial calculator is a great tool that can help individuals to control spending their money. By using such a calculator, they will become aware of their shortcomings and prevent non-essential expenses.

Consider the current monthly savings are Rs.7,000. To meet the future financial goals, you have stated an investment. It requires a dedicated monthly sum of Rs.20,000. Now the cash deficit is Rs.13,000. It means your savings are less. Alter the budget to meet this deficit.

13. Know Yourself Better

Self-awareness is the key to every individual’s success in life. It applies to every aspect of life, inclusive of financial planning. Some of us may be spending a lot of money on unnecessary purchases knowingly as well as unknowingly. There is always a pattern that impulsive spenders follow. Therefore, we should know ourselves to the extent of understanding this pattern. People overspend on different things they like. The foodies may aim to taste food from every food outlet. The shopaholics are always obsessed with trendy items. Technology enthusiasts are always on a constant lookout for the latest gadgets. The real-estate property dealers are infatuated with properties. Families are looking forward to expensive vacations. Temptation prevails everywhere. But we should be strong enough to resist this and also stick to our budget. Therefore, individuals should divert their minds toward fulfilling their financial goals first. Then once these goals are satisfied, they can fulfill their cravings by overspending the residue amount.

How To Stop Overspending With Credit Cards?

Credit cards are the worst way to perform electronic cash transfers. By swiping a card, people do not get the closest hint of overspending. They feel that they own the money. They don’t realize that they are just borrowing the amount from the bank. At the end of the month, they need to repay the amount that they have borrowed with interest. The interest on this debt continuously increases until the debt is paid off.

Overspending from the credit card also affects the credit score of an individual. The prime factor that determines credit card score is the utilization of the credit card or the extent of using the card. After utilizing the credit card for over 30% of its capability, the scores are affected.

As much as credit cards are tempting to use, we can optimize the way we use it. Several benefits come with using a credit card. They offer reward programs, cashback on purchasing certain items, and other incentives. The credit score of individuals is enhanced just by paying the bills on time. We can always use these cards for our benefits. So, let us look into the ways we can prevent overspending on credit cards.

a. Know Your Budget:

Before swiping the card, keep your budget in mind. People lose their self-control while shopping with credit cards. Hence, you be aware of your spending pattern and control it. Self-awareness is the key to the financial success of every individual. So, make a budget for yourself and stick to it.

b. Set A Limit For Spending On Non-Essential Expenses:

Every month we have to meet various expenses. These are daily expenses, financial goals, and luxury expenses. After meeting the daily expenditures and the stress-free financial needs, we may think of spending the rest on non-essential commodities. As much as it is allowed but to be on the safer side, think about it. What if the price of essential commodities like groceries and the bills suddenly increases? What if you have developed a cavity and you need immediate surgery to treat it? Considering such small-scale emergencies, we need funds to tackle them as well. So, setting a limit on meeting the expenses for non-essential entities will enable us to be prepared for such emergencies.

c. Shop With A List:

If you are the kind of person who goes shopping with the intention of purchase two items but returns with five, then make a list before shopping. Making a list will force your mind to stick to it and prevent you from making unnecessary expenses. Here, mind training and self-control are mandatory. If you do not train your mind to restrict to the list, it will be useless to create one.

d. Use The 24-Hour Rule Before Making Impulsive Purchases:

Every time you are tempted to make impulsive purchases force yourself to wait for 24 hours. The presence of a credit card in our hands catalyzes impulsive spending. But if you apply this rule in your daily life, then during this time, you can reflect on your decision whether you need the item or not. Once you realize that you don’t need to purchase this item, then you will prevent overspending.

Financial Planning Calculator

A financial calculator is a tool used to showcase the paramount importance of our financial goals. It enables us to achieve future goals by portraying them as desperate needs, like daily expenses. Let’s understand the working of a financial calculator by considering an example.

Mr. Khan is a 40-year-old employee in an MNC. His monthly salary is Rs.1,00,000 and, his daily expenses are Rs.50,000 per month. He is a financially stable person with a good income that sustains his daily expenditures, savings, and investments. But he still not able to overspend. His budget is as follows.

FLOW CHART

The flowchart gives us a clear picture of the budget, followed by Mr. Khan. As can be seen, he has categorized all his expenses into three different columns. These are daily expenses, future goals, and the remaining balance. Although he is earning Rs.1 lakh per month, he can hardly overspend from his luxury expenses. The major portion of his salary is used in meeting the day-to-day expenses. Then the second largest chunk of his monetary cash reserves is spent in planning for future goals. The balance left is Rs.5,000. Mr. Khan is earning a decent salary. But his assets are mostly used in saving for the future. It is a good budget as he knows his priorities are aiming to fulfill the first, rather than using his money to overspend on fulfilling his current desires.

How Does A Financial Calculator Work?

The future can be different for every individual. In this example, we have considered the future retirement plans, the child’s future, and the home state. These are the basic future goals that one should set for himself. Apart from these, several other targets can be set as these three goals are not enough. Every individual should be aware of his priorities. For the working of the financial calculator, we will consider only these three goals. A financial calculator is a crucial tool that enables individuals to predict their savings and investments. So, individuals can reach their goals most efficiently. Regularly using this calculator will help us to keep control of our mindsets and keep the temptations away. Now let’s look into the working of this financial planning calculator.

Through this calculator, the individuals will be able to able to keep track of their future goals. Its main highlights are the current savings of an individual. The calculator compares the present savings of an individual with the required investment needed to achieve future goals. As an example, the calculator in this article considers the following as the future financial goals of an individual.

i. Retirement Plan

Every employee should be ready with the post-retirement plan. The retirement corpus is an essential means of survival for individuals during their old age. To generate these corpus employees, should continuously invest in tools that enable the growth of their funds. The financial calculator assists the individual in determining the amount of investment.

ii. Child’s Future

If you are a parent, then along with your retirement plans, the educational needs of your children are also important. The financial needs of the child during his period of growth are the parent’s responsibility. It includes their education, job, and marriage expenses. The financial calculator also aids parents to determine the amount of savings needed to generate the corpus for their children.

iii. Home

The shelter is the basic necessity of man. Every individual must own a house for the safety of his family. So, this calculator also determines the amount of savings needed to build sufficient funds for the purchase of a house.

The Functionality Of The Calculator

Step 1: Input The Data

When you open the financial calculator, there will be several fields. These fields as arranged according to the various financials’ goals set by the individuals. These fields are RETIREMENT, CHILD PLAN, and HOME BUY. Under these fields, the individuals have to input the data asked by the calculator. The data includes the income, expenses, retirement corpus, the educational goals of the child, and the budget for the purchase of a new house. Once the data in these columns are fed the results will be generated on the click of a button. 

Step 2: The Result Is Generated

Once the input is fed into the calculator the results will be generated within a few seconds. The result gives two numbers. These are the current savings and the required savings.

a. Current savings:

According to the data that is feed into the calculator, the current savings of an individual are calculated. This figure is obtained by subtracting the current net income from the total expenses.

Current savings = Current Net Income – Total expenses.

b. Required Savings:

This figure is obtained by considering the future goals. Based on the input provided, the calculator estimated the amount of money that is needed to be invested to attain the goal. While the required savings are provided, the breakup of these savings is also mentioned so that the individual will be aware of the deficit and take the necessary measures to curb these shortcomings.

The current savings and the required savings are compared. The comparison between these savings keeps the individual updated on whether he can afford to overspend or not. After comparing, if the current savings are less than the required savings, then there is no room for overspending. It is because the amount needed is lagging. So, every single penny will be consumed in meeting the minimum goal of fulfilling the required savings. Otherwise, if the current savings are greater than the required savings, then individuals need not worry about their future. As their future is financially stable, they can use the additional savings for fulfilling the luxury expenses.

Bottom Line

How to stop overspending? It is a simple question with a simple answer. But when it comes to giving up overspending, it is difficult for impulsive spenders. The initial few days and months will be hard to resist temptations and give up on luxury expenses. Thus, the mindset should be trained to stick to the budget. It includes fulfilling the daily expenses and future goals first. This psychological weakness possessed by several individuals will require tremendous mind control.

Every person should choose between controlling his urge for unnecessary purchases. The inner voice always speaks up when we are about the make the wrong choices. “Why do I need this commodity?” “Is it worth spending?” “Can I afford it?”. These are the questions you should ask yourself before making any purchases. If the answer to all these questions is affirmative, then go ahead and purchase the item. But if the answer to even one of these questions is negative, then the purchase should be terminated.

Priorities should be set, this will make the mind work towards fulfilling these priorities. A financial calculator is an important tool. It gives clarity about the current and the required savings. It helps individuals to prepare for the future by knowing the exact number of funds that are needed to meet the minimum requirement. Once the limit is set the mind will automatically work towards meeting necessity. It is achieved by abstaining from overspending and accumulating funds. Don’t overspend if you cannot afford it. Focus on the daily expenses and plan for the future. Once the needs are achieved fulfill your wants and wishes. Lead a stress-free financial life.