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Why do so many of us go over-budget, over and over again? It seems so fundamentally obvious — we each have a finite amount of money that we can spend while keeping our finances healthy. So why do many of us have a problem sticking to that limit?
Well, the answer is complicated. Resources, and our relation to them, are inflected by cultural ideas about willpower, rewards, gender, status, and our understanding of consequences. Swiping a credit card (which, as we'll discover, is more dangerous for your budget than paying in cash) involves a lot more than just stacking up money on our statements.
What leads people to go on shopping blow-outs, even if they're financially problematic? Overspending is part of a large coterie of behaviors that are of psychological interest because they're unhealthy by nature, like consuming large amounts of junk food. We do them even though we know they're bad for us, because we want the hit of pleasure from our purchase or experience now and don't want to deal with the consequences just yet. Understanding this is hardly a new problem; how to manage human pleasure and its disregard for consequences was one of the key concerns of the ancient Greek Epicureans, a school of philosophy based on simple pleasures in moderation.
But overspending itself is a very modern issue. So how can we understand why we go over budget and how to curb the impulse? We spoke to money expert Stefanie O'Connell about the different aspects of how it works.
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We Overspend Most On Big Shopping Sprees
There are two distinct areas in which humans are most prone to overspend, and they may surprise you. One, perhaps, is obvious: we tend to go over-budget on extravagant purchases and big blow-out experiences. However, according to research published in 2012, we also overspend on "big moments" (birthdays, Christmas, promotion days) because we don't keep track of just how many of them we have — and so end up spending over our normal amounts because of sheer numbers.
Our rationales for excessive spending on special occasions are usually that "they happen very rarely," but that's not actually quite true — and without keeping scrupulous track of how often they do occur, we can tend to give ourselves more treats than our bank accounts can sustain.
There's also a suggestion that people who count every penny might be more likely to overspend on everyday things than those of us who simply estimate, though the science behind that is shakier. Tracking spending and planning ahead scrupulously are often touted as some of the best ways for people within small budgets to keep their grocery shopping and other necessary spending under control. The Cornell Food & Brand Lab, in 2010, brought out a study suggesting that those who do plan ahead for groceries may end up overspending more because they underestimate what they'll need — but, in a demonstration that you can't believe everything you read about psychology, the Lab is currently under investigation for publishing error-ridden research, so it's unclear whether the 2010 results stand up.
Budgeting can create issues, though. O'Connell told Bustle that keeping within a strict spending limit can invite overspending because of another psychological aspect: "our tendency to think of budgets as restrictive." "Those feelings of limitation," she said, "are proven to result in poorer financial decision-making. Psychologists refer to this as a ‘scarcity mentality,’ a belief of not having enough. When you operate under a scarcity mindset, your mental bandwidth becomes so consumed by your immediate needs, that long-term plans, (like saving money and sticking to the budget you so painstakingly crafted), fall by the wayside." She notes that scarcity mindsets have the same effects on decision-making as a night of no sleep or alcoholism. The result? Going over-budget.
There Are Gender-Specific Theories About Overspending, But They Don't Tell The Whole Story
According to some economic theorists, there are gender-based reasons that we over-spend. University of Michigan scientist Daniel Kruger theorized back in 2008 that many men tend to overspend based on their "mating success." Kruger believes that, evolutionarily speaking, males often put on a display to attract mates (of any gender) with their splashy purchases, from clothes to vacations to Corvettes, or to reassure themselves that they still have the power to do so. Hence the classic midlife crisis acquisition of expensive jeans and a convertible. In Kruger's study of study of 18-45 year olds, he found that the more men overspent, the more partners they wanted and the more they had.
However, it's a theory that doesn't only apply to men. Anna Broadway at The Atlantic noted in 2013 that "for both women and men pursuing long-term mating strategies, a potential partner's character, personality, and social status carry significant weight. None of these can be measured objectively, of course, status in particular.... we tend to judge others' status partly by their stuff."
And women also spend large amounts to attract mates; that is, indeed, part of the basis of the global beauty, lingerie, fitness and fashion industries. Women, as the Harvard Business Review explained in 2009, are the world's biggest consumer spenders, with about $20 trillion of expenditure annually. Part of that is due to responsibility for household expenditures (because women are more likely to be the ones taking care of children or doing housework), but you can bet your rose gold iPhone that a lot of the rest of it is for pleasure, status — and mate attraction.
You Can Keep Within Budget By Thinking About The Future
Luckily, psychology can also give us clues on how to curb our overspending habits if we're inclined to go over budget on the regular. A big tool for curbing overspending is, apparently, perspective. Numerous studies have found that if people contemplate their future and spend time assessing the pros and cons of their purchases in a realistic fashion, they are less likely to indulge too much in things they can't really afford. Balancing the immediate desire for a rewarding experience with awareness of its future consequences is a good strategy for keeping things in check.
"One of the reasons sticking to a budget is so challenging," O'Connell told Bustle, "is due to a psychological phenomenon called present bias." Present bias is a way of understanding what O'Connell calls "the constant (and unequal) battle between present and future self. For example, my future self may want to buy a home, but my present self wants to splurge on a tropical vacation." The problem lying behind overspending is that "the present self tends to win this battle, because it turns out we’re extremely disconnected from our future selves."
And this isn't just a theory — it's backed up by research. According to O'Connell, "Brain scans of individuals thinking about their future selves mirror brain scans of those same individuals thinking about strangers. And because we tend to be no more connected to our future selves than we are to strangers, we tend to favor choices that satisfy our present self, regardless of how it affects our future self - which can lead to more than a busted budget, namely high debt, insufficient savings, an inability to retire, etc."
Early budgeting is also, according to budget experts, a good way to avoid overspending and tradeoffs (and a rebuttal to the potentially flawed Cornell study). In 2015, University of Chicago scientists found that, while budget planners can run into two types, they're both effective when it comes to monitoring overspending in potential bonanza circumstances like holidays. You're either an efficiency budgeter, where you try to keep overall costs down with deals and coupons, or a priority one, where you prioritize big spends on the things you like most while skimping on others. Budgeting also prevents responding to panicky triggers like "it's on sale!"
There's an important aspect to consider here, too: how you perceive willpower. According to a fascinating study done in 2015 and published widely, including in the Wall Street Journal, how much you overspend can depend a lot on whether you think willpower is a finite resource that's used up quickly or a trait we have in abundance. College students who thought of willpower as finite were likely to reward themselves whenever they exerted self-control, usually with treats or overspending, while those who thought it was abundant didn't do that.
If You're An Overspender, Try To Make Cash Purchases
There's one very practical tip when it comes to curbing everyday overspending: work with cash. Money is one of humanity's most ancient inventions, but for the predominant part of history it's been physical, an object in the world with a certain amount of worth that can be exchanged for goods and services. While credit notes have a long history (at least back to the 1800s), modern credit and debit cards are the most prevalent non-cash based economic tool in history, and it's not hard to understand why that might lead to overspending.
Researchers have found that, without money physically at hand, people are more likely to spend beyond their means, because it's harder to conceptualize their assets going down when they're not directly observable. A 2008 study found that we spend more with non-cash purchases than we do with cash, while psychological experiments have found that those with credit cards are more likely to pay more than those armed only with cash, partially because it's less "psychologically painful" to swipe a credit card, and partially because the availability of credit alters our perceptions of our potential spending power, and our desire to spend.
So if you want to get yourself under control, you can stop using credit, give yourself a strict budget, arm yourself with cash, and look at your self-control as something that can be exercised continually without being used up. "Instead of thinking about budgeting as a practice of deprivation and sacrifice," O'Connell said, "we need to think of it as a tool for affording life on our own terms. When you think of a spending plan less as a mandate for all you have to give up, and reframe it as a roadmap for all you stand to gain, you're much more likely to stick with it." And no, you do not "need" that trip abroad to celebrate your latest delightful achievement — because frankly, it's probably one of many (even if it doesn't feel that way in the moment). Patting yourself on the back can be enough.