Most financial experts recommend one thing if you want financial wellness: spend less than you earn. Since the concept is simple, it’s often hard to understand why that’s such a challenge for so many. In reality, there is a slew of potential motivators that lead people to overspend in relation to their income. Here’s a look at eight reasons why people spend more than they earn.

8 Reasons Why People Spend More Money Than They Earn

  1. Keeping Up with Others

One of the biggest culprits when it comes to overspending is the attempt to keep up with others. Typically, this occurs when a person is in a peer group – such as a purely social friend circle, extended family, or colleagues at work – where there’s a financial disparity. A person might think they have to spend more to keep up with those around them. Otherwise, they may believe their peer group will shun them.

Ultimately, this reason is largely about saving face or maintaining a specific image. However, it’s incredibly damaging, as overspending motivated by the desire to keep up with others is surprisingly pervasive and may lead to lasting patterns that end up leading to a financial collapse.

  1. Wanting Immediate Gratification

The consumer world bombards people with messages that make delaying a purchase seem dangerous or risky. There’s also the idea that people deserve good things in exchange for the effort put worth through work or managing other responsibilities. Together, these concepts lead to the desire for instant gratification.

Often, this notion is also bolstered by the immediacy associated with everyday living. You can head online and get any piece of information immediately, often for free. Similarly, streaming services and social media provide near-unending content right away. At times, this makes people used to getting what they want when they want it, and that mentality can alter purchasing behaviors.

  1. The Disconnect When Using Cards

When you’re using a credit or debit card, it doesn’t have the same psychological impact as spending actual cash. Often, the inherent degree of ambiguity makes it harder to gauge how a purchase will affect them broadly, leading to assumptions that buying the item or paying for the service isn’t a big deal, even if that isn’t the case.

Essentially, paying with a card doesn’t result in an immediately perceivable loss. The card goes in the machine; then, the card ends up back in a wallet. While there’s a numeric total on the screen, the readout doesn’t show how much a balance declined. As a result, people miss the genuine impact until well after the purchase is over.

  1. A Lack of Awareness

When a person has low visibility into their financial lives, they don’t know they’ve overspent until it happens. In most cases, this occurs when a person doesn’t have a budget and isn’t vigilant about monitoring their accounts, leaving them unaware of how much money they do or don’t have available.

There are several reasons why a person may have a lack of awareness regarding their financial situation. In some cases, it’s simply because they didn’t previously have a need for the insights, leading them to assume it isn’t necessary until there’s an incident. In others, fear about their financial situation may make them resistant to the idea of knowing it for a fact, essentially causing this approach to boil down to avoidance.

  1. Making People Happy

There are some cases, people struggle with overspending because they’re trying to make other people happy. Some people have trouble saying “no” to their partners, children, parents, or friends, particularly when the request seems reasonable or it would bring the other person joy. Similarly, if saying “no” would upset the other person, they may choose to overspend in an attempt to ensure the other person’s happiness.

Often, this inability to say “no” extends beyond the parameters of a purely spending problem. It can also manifest as taking on too many responsibilities in an attempt to unburden others, for example. However, the end result is still similar, as it leads to overextending, financially or otherwise.

  1. Spending Before Money Arrives

There are plenty of situations where a person may feel confident that a significant sum is arriving, even if they don’t have it yet. For example, if an employee traditionally receives an annual bonus, and it’s usually a particular amount, they may think they can safely spend that cash well before bonuses are announced. The same can occur with other potentially predictable windfalls like tax refunds, even if a person hasn’t done their taxes yet.

The issue is that nothing is genuinely certain in these scenarios. Bonuses can fluctuate for a variety of reasons. Tax codes constantly change, altering how much a person owes. As a result, spending money before it arrives can lead to accidental overspending if the amount received is ultimately less than expected.

  1. Following Learned Patterns

The children of over-spenders may incidentally learn financial patterns that lead them down the same path as their parents. Essentially, if a person saw their parents acting cavalier about money and their childhood was generally fine during that time, they may believe that making similar choices won’t have repercussions.

However, even a tumultuous childhood can lead to unhealthy financial patterns. For instance, if their parents were living paycheck to paycheck due to their income level, saving wasn’t likely part of the monetary equation. Instead, the focus is on stretching every penny, and that typically involves spending everything that was earned to support the household.

As a result, the children don’t learn how to incorporate saving into their plan, which can leave them ill-prepared to navigate it once they reach adulthood, even if they have enough money available. Additionally, they are familiar with a financial approach that involves spending every dollar, which could cause them to default to that approach even if their income situation is far better than their parents’ circumstances.

  1. Comfort with Debt

When a person is dealing with debt payments for an extended period, having those obligations can start to feel normal. In that case, using credit cards up to the limit and making new credit card purchases after sending in a monthly payment to reach the limit once more may not seem like a burden, as the monthly obligation isn’t changing. Similarly, getting a new loan after paying one off might seem like no big deal.

Essentially, the person’s comfort with debt makes overspending seem like just spending. They’re focusing on their ability to handle the payment, not the total of what they owe. However, this approach can lead to financial hardships, such as lowering credit scores, diminishing borrowing power for other needs – like mortgages – or giving them fewer ways to handle emergency situations.

Paying off debt can also seem like a lot of work with an ambiguous reward. While an increased credit score and more borrowing power are beneficial, it doesn’t feel as rewarding as securing a wanted item. That can make breaking the cycle harder, even if a person knows intellectually that it is a good idea.

Can you think of any other reasons why people spend more money than they earn? Do you (or did you use to) struggle with spending more than you earn and want to tell others about your experience? Do you have tips to prevent overspending? Share your thoughts in the comments below.

Read More:

  • How to Stop Inflation-Induced Overspending
  • 7 of the Worst Excuses for Overspending
  • 10 Steps to Avoid Overspending on Christmas Gifts

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Tamila McDonald
Tamila McDonald

Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.