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Why is it so easy to overspend and end up in debt?

Nobody sets out to spend more than they can afford. It leaves you with reduced financial independence and increases your chance of falling into debt. And we all know what that entails - a bad credit score, being on a company’s blacklist, a whole load of stress, financial constraints and nasty feelings of guilt and shame…

Overspending comes in just as many shapes and sizes as we do, so it can be difficult to identify patterns that lead to indebtedness.

But are there any common themes we can spot?

Well, yes actually.

Everyone who overspends is human.

And for all our idiosyncrasies and eccentricities, we’re actually very similar.

Having an understanding of what makes us tick and exploring behavioural science concepts, we can pinpoint patterns and reflect on how we can adjust our spending habits.

Old habits die hard

The old adage is true - it can be incredibly different to change our ways.

This is because neurones located in the basal ganglia (the region in our brain that plays a major role in habit formation) fire when we begin a behaviour, subside when the behaviour occurs and fire again when the behaviour is finished. Over time this leads to patterns forming, both behaviourally and neurologically, that come so naturally they can be difficult to break.

That’s not always a bad thing - brushing our teeth, driving to work or putting the dishes away are routines well worth sticking to.

Though things can get tough when bad money habits become hard to shake. Whether you’re in the habit of impulse buying, not sticking to a budget or relying too heavily on credit cards, spending habits can severely affect your finances.

To make things harder, studies show that it’s more difficult to change habits when you’re under stress, something which doesn’t pair well with being in debt.

So how can you kick bad spending habits?

Noticing which habits could lead to overspending can help us think more carefully about certain behaviours and help us resist urges. Try to get in the habit of making smarter spending choices, such as not buying a chocolate bar which is ever-so conveniently placed at the checkout, or taking public transport instead of calling a taxi.

Getting into the habit of budgeting is another great way to stay financially healthy. Budgeting will mean different things to different people, and the action itself will vary, though the outcome of successful budgeting is almost always the same: an increased awareness of where your money is going, an ability to recognise opportunities for spending changes, and an increased sense of control. It also makes it easier to confidently put money aside for a rainy day, meaning that if unforeseen expenditures arise they shouldn’t break the bank.

If the term budgeting is off-putting, maybe try thinking of it as money allocation, or even a means for making spending choices at the start of the month rather than in an emotional moment.

If you’re already in the habit of certain spending patterns, a great way to kick them is to have incentives and be held accountable. The American Society of Training and Development found that if you are held accountable to someone else (such as by telling someone that you will achieve a goal) then your chance of success reaches as a high as 95%. That means that if you tell your friends, family or colleagues that you will reduce your gambling spending or going out costs, you will be much more likely to achieve your goal.

We forget that our future selves won’t think the same as our present selves

This phenomenon is called projection bias. It’s a kind of cognitive bias that means we overestimate the degree to which other people will think, feel and act like us - our future selves included.

Logically, we know full well that our beliefs and values change throughout our lives. Though research has shown that we are pretty bad at forecasting the amount to which that happens. Anyone who’s done a supermarket shop when they’re hungry will know!

Buying decisions can be hugely swayed by what we value highly now (like a new phone) rather than in the future (wishing we had put the money towards something else).

The key to breaking this pattern is to take more time mulling over purchases, especially when they are expensive. You might want to wait a while - say, up to a week - before purchasing an item. Impulse buying is strongly tied to emotions, so giving yourself time to reflect on the purchase can prevent you from buying things on a whim. In fact, research has shown that people who are more aware of their future wants and needs are better at reaching their goals.

It could also help to reflect on longterm goals, whether they are financial, personal or professional. Having a clear idea of who you want to be and where you want to go in life can help you remain focused. As cliché as it sounds, you could try writing down where you want to be in 1, 2 or 3 years time, and then work backwards to work out how you can get there.

We confuse short-term and long-term happiness

This follows on from the point above, taking the idea that we are relatively short-sighted. We often chase things we think will make us happy quickly, such as going on a shopping spree or buying a coffee when we’re out the house.

However, despite all of life’s ups and downs, we tend to revert to a relatively stable level of happiness, a concept known as hedonic adaptation.

It’s the idea that the more money we make or the more chocolate we eat won’t result in heightened long-term happiness, since our expectations and desires rise in tandem. After a while, shiny new things no longer feel special, and what we originally perceived as positive - or negative - shifts back to neutral.

As a consequence, we become more sensitive to differences in a stimulus. A person moving into a 400-square-foot house may not notice much of a difference at first between their house and the 450-square-foot apartment next door. However, after they adapt to their current house, the house next door begins to appear much larger and more favourable in comparison. They may even become motivated to try to buy a larger house.

Striking a balance of short-term and long-term happiness is the best recipe for overall happiness levels. Everyone has different definitions of what makes them happy, though long-term happiness usually involves well-being, contentment, fulfilment and satisfaction.

Staying on top of phone or energy bills won’t be nearly as attractive as going out with friends or buying new clothes, though in the long-run, both our wallets and minds will thank us for it. The feeling of reduced stress and increased financial independence that comes from being up to date on fixed payments and paying off debt won’t get old, whereas the high that comes from buying a new car will inevitably diminish.

Instead of only directing money towards impulse buys for instant gratification, we might like to think about how we can use money to reach long-term goals, whether that means saving up enough to spend on something like a house in an area we particularly like or having enough money left over at the end of the month to be able to give to others.

It’s also a good idea to try reframing how we value our possessions and adapting how we use them. It might be useful to remind yourself that new possessions will get old, just as your current possessions have done. By reflecting on how you feel towards your possessions now compared to when you first bought them, you might gain perspective on the things you value highly, allowing you to direct your money towards things that will benefit you in the long run.

This is not an exhaustive list of reasons we might overspend - there will be other drivers that might cause us to splash the cash, so identifying your own drivers and habits is key.

Just as it’s possible to kick habits that can lead to overspending, it’s also possible to put habits in place that get you out of debt, whatever your situation may be.

It’s important to remember that if you find yourself overspending or falling into debt, you are not alone. It’s perfectly normal to slip into bad spending habits, be in a precarious financial situation or be hit by sudden costs.

If you are really struggling financially, there are lots of free experienced organisations that can help.

StepChange and Citizen’s Advice both offer free debt advice, while Mind is a brilliant mental health charity.

We’ll be writing more blogs in the coming weeks about how to get on top of debt, so stay tuned. 😊

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