Financial planning: How to curb overspending and manage finances better? Expert answers

Setting a monthly household budget and managing expenses within earnings are the tenets upon which fianncial stability rests. However, beneath the surface of these practical steps lies an intricate emotional dimension that significantly influences one's attitudes and choices concerning money. Overspending is one of the major hurdles in striking financial balance between income and expenses. Talking about the phenomenon of overspending, Sonali Jindal, co-founder and COO of digital payments app RING, says that the allure of that new gadget, the desire to keep up with the latest fashion trends, and the instant satisfaction of a shopping spree - all of these factors can lead one down a path of overspending. However, she adds that recognizing the psychology behind overspending and implementing effective techniques is the first step towards regaining control of finances, which ultimately paves the way to a more secure future.

Amidst the current landscape, Jindal emphasizes the importance of avoiding overspending, and says, "Recent data reveals a concerning trend, as retail inflation surpassed the Reserve Bank of India's (RBI) comfort zone, reaching a 15-month peak of 7.44 per cent in July. PwC’s latest Global Consumer Insights Survey for India drives home the key message of ongoing financial stress in the lives of consumers, where 75 per cent of them are very concerned about their financial situation. This urges us to initiate action."

Talking about factors behind this phenomenon, she opines, "Discovering how to cut down on spending requires uncovering the feelings and thoughts that push us to use our money. Sometimes, spending too much isn't just about lacking control – there might be other reasons. Many factors contribute to overspending, and understanding what triggers your overspending is the first step towards conquering it."

Delving into the psychological details of overspending, Jindal says, "The human brain is wired to seek immediate rewards, and advertisers capitalize on this by creating a sense of urgency around their products. The rise of online shopping and fast checkout options exacerbates the problem, as it's easier than ever to make impulse purchases without a second thought. Emotions play a significant role in our spending habits. Stress, boredom, happiness, and even sadness can prompt impulsive buying decisions. The temporary euphoria we experience from shopping can provide a quick escape from negative emotions, leading to an unhealthy cycle of emotional spending. A lack of understanding of personal finance can contribute to overspending. Without a solid foundation in budgeting, saving, and investing, it's easy to fall into the trap of overspending and accumulating debt."

Talking about measures one can take to stop overspending and take control of their finances, the co-founder and COO of RING, suggests these simple steps — 

Create a Detailed Budget

Developing a comprehensive budget is the cornerstone of regaining control over your finances. One must list sources of income and categorize expenses, including fixed costs like bills and groceries, as well as discretionary spending like entertainment and dining out. A budget provides a clear snapshot of one's financial situation and guides their spending decisions.

Track Spending

One must maintain a record of every single expense they make for a designated period — whether it's a week or a month. They must then review their spending patterns to identify areas where they tend to overspend. This awareness can empower them to making conscious choices and cut down on unnecessary expenditures.

"One-in, One-out" Rule

For every new item that one wants to buy, they must commit to getting rid of one similar item that they already own. This not only helps curb impulse buying but can also encourage mindful consumption.

Practice Delayed Gratification

One must adopt the "24-hour rule" before making non-essential purchases. When feeling the urge to buy something, they must wait for 24 hours. Often, the initial excitement subsides, and one can make a more rational decision based on necessity rather than impulse.

"No-Spend" Day Challenge

One must choose a day each week to transform into a "zero-expense" adventure, where they embark on a journey of financial mindfulness by refraining from spending. This captivating expedition nurtures resourcefulness, kindles creative sparks, and unveils the hidden treasures of mindful consumption.

"10 Times" Rule

Before making big splurges, one must apply the golden rule of utility. they must ask themself — "Will I be using the item at least 10 times?" They must let this rule guide them, ensuring every expense becomes a valuable investment.

Unsubscribe

One must take charge of their inbox by regularly reviewing and unsubscribing from marketing emails and deal alerts. Unsubscribe from pesky marketing pitches and deal temptations, liberating yourself from overspending.

Revenge Spending and Settlement

In a psychological phenomenon that has been called "revenge spending", people tend to overspend after times of uncertainty (like pandemic). This overspending can be to "make up for lost time" after people tighten their purses in times of uncertainty. The situation is made worse by the convenience of credit. However, experts suggest that budgeting and prompt settlement is key to ensuring a path toward maintaining financial well-being.

Striking the Balance

There are moments when our affection for loved ones leads us to indulge in thoughtful gestures that may involve a bit of extra spending. It is essential to remember that maintaining financial responsibility doesn't mean sacrificing these cherished moments. When handled responsibly, credit becomes a tool that enriches our lives, enabling us to seize every opportunity to create lasting memories without compromising our financial stability.

Although the psychology of overspending is a complex mix of emotions, societal pressures, and lack of financial awareness, Jindal says that by understanding the underlying factors and implementing effective techniques, one can regain control over our finances and pave the way for a healthier and more sustainable financial future. "Through mindful spending, goal setting, and a commitment to financial literacy, we can break free from the cycle of overspending and secure our financial well-being," she sums up saying.