How to stop spending more money than you make

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As society continues to gravitate toward electronic ways of making financial transactions, we have come to expect fast results. The days of paying by cash have rapidly faded away and, as a result, it has become much easier to spend more than what can be afforded.

While speed and ease is a great convenience, it does come with some drawbacks, including the ability to overspend. If you want to make a purchase, all you need to do is log online or pull out a plastic card and you can almost instantaneously own the item. Not to mention how ATMs have made it so easy for people to pull cash out of the bank on a whim. As a result, many people have found themselves sinking deeper into debt.

The combination of accessibility and temptation is risky from a financial standpoint. Did you know, as of May 2016, the total outstanding revolving debt in the United States was $953.3 billion? This money owed is primarily from credit card debt. Breaking it down per household, in 2015 this averaged to be $15,762.

Want to avoid spending more money than you make? Consider these approaches.

Differentiate "needs" from "wants"

One significant problem associated with overspending is having difficulty separating needs from wants; the latter often results in an abundance of impulse buys. People who find themselves carrying large amounts of debt often realize they'd let things spiral out of control because they could not distinguish between the two.

If you are teetering between needs and wants, a general good rule of thumb is to hold off on purchases that are not essential and wait a couple of days. If the item is urgent, it may warrant a purchase, but if it is simply a "want," you may find yourself no longer interested in the item after some time passes.

Budget your money

Budgeting is not the easiest task to do. Creating the budget is part one; sticking to it is part two. Numbers do not lie and, if you commit to a budget, you have a clear-cut guide to show you how much is available versus how much can be spent. This should result in less spending, as it forces you to carefully evaluate the aforementioned needs and wants to decide what is most important.

The key to budgeting success is to ensure that once a budget is created, it is followed carefully. This can be hard at first, but once one is established and followed routinely it does get easier.

Quit the plastic

One of the best ways to control spending is to break the habit of using credit cards to pay for goods and services. Often, people pay bills or other expenses, such as grocery shopping, with credit and do not carefully track the charges they make. Unless you keep careful track of spending and keep it under control, using credit for everyday expenses is a bad practice for two reasons:

  1. It can give a false impression that more money is available based on credit limits
  2. Charges can accumulate very quickly

Excessive charging on credit cards can result in a bill that is too high to pay by the time the monthly billing cycle completes and, if the credit card bill is not paid in full by due date, interest charges are added. High interest charges only add to accumulated debt, resulting in a vicious cycle. In order to stop spending more than you earn, avoid falling into this credit card pitfall. Instead, turn to debit cards or use good old cash.

Consistent overspending almost always results in excess debt. However, by creating a plan that balances income and expenses, you should be able to significantly decrease any overspending. You can quit spending more money than you make. Consequently, this can considerably improve your long-term financial situation as well.

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