“Cars, clothes, even coffee, have all become status symbols, but when you’re tight on cash even little splurges start to add up,” says Debt Expert, Howard Dvorkin, author of Power Up: Taking Charge of Your Financial Destiny (Wiley, 2013). “Suddenly, ‘no-name’ coffee isn’t good enough when everyone else is holding a Starbucks cup. "While pressure to conform to your social group is a major reason why people overspend, it’s certainly not the only one. . .”
INTERVIEW: Financial Advisor, Howard Dvorkin, M.B.A., C.P.A., specializes in consumer credit and debt issues. As the Founder of one of the nation's leading credit counseling organizations, Howard’s been featured on CBS News, FOX News, CNN, in The Wall Street Journal, The New York Times, Fortune, Entrepreneur and many others. He can discuss everyday traps that make people overspend and the #1 way it can be prevented.
So, Why DO People Overspend? Are there everyday traps that make them more likely to do it? Howards Explains . . .
- Accessories. Forgetting to budget for accessories, whether its jewelry or mounts/wires for your new TV, they cost money you didn’t plan on spending. Same with maintenance fees – like new tires for your car and lawn maintenance for your McMansion. Always factor in accessories and maintenance costs before you make the initial big purchase.
- Shopping The Sales. It may sound backwards but shopping the sales can actually make you spend more than you normally would have, and usually on unnecessary items. Be careful when shopping sales, know what you can afford to spend BEFORE you start checking out the merchandise.
- Impulse Buys. Whether you’re shopping online or in-store, your surroundings are designed to make you buy last minute items you never knew you needed. Adding to the cart can really add up. Make it a rule never to buy items at checkout.
- Store Credit Cards. Department store cards are great for rewards, but typically charge higher interest rates. So while you may save money initially, you’ll waste it later paying interest. Plus, these cards often have a lower credit limit, which means carrying a high balance ratio can impact your credit score.
- Rationalizing Debt. A dangerous phenomenon when it comes to overspending is when people start to accept their debt as being a part of our culture. They say, “hey, no big deal, everyone’s in debt these days so it’s okay for me to be too.” While debt is widespread it’s certainly not an excuse to give up on your financial future.
- Your Emotions. This is one of the most dangerous causes of spending binges. Low self-esteem, guilt, depression, and even happiness, can spark a buying frenzy you’ll only regret later. Retail therapy is only a temporary fix and it doesn’t address the underlying causes of emotional distress.
- And Even Your Senses. Even oddball things like indulging your 5 senses can get you into money trouble. For example, ever gotten stopped in your tracks by the smell of something delicious, like a bakery perhaps, then followed the scent and bought something just because it smelled so good? Touch is the same; cashmere is going to feel better than cotton but indulging is a surefire way to go over budget.
PLUS, What’s The #1 Way To STOP Overspending? Take a close look at the state of your finances. It’s much easier to overspend when you’re NOT aware of what’s coming in and what’s going out. Every month, take about 15 minutes to go over your bank statement online. Once you see where your money is going you’ll be more conscious and thoughtful about where you spend your cash next month.
Howard Dvorkin is the author of, "Power Up: Taking Charge of Your Financial Destiny" (Wiley, 2013) and is a Certified Public Accountant and Credit Counselor. A noted financial expert on consumer credit and financial planning, Howard is also the author of the acclaimed, "Credit Hell: How to Dig Out of Debt" (Wiley, 2010).