Spending vs Saving Habits

Americans are spending on average almost 80% of what they earn. This leaves little for an emergency fund, retirement, or savings for big-ticket items like a house, a car, or an appliance.

The situation is not improving. The Bureau of Labor Statistics noted that while earnings decreased by 1.5% this past year, costs of things like housing, transportation, and food increased by almost 5%.

This means Americans have even more trouble saving for emergencies and retirement. Only 40% of Americans surveyed said they could save a thousand dollars for emergencies.

Americans aren’t saving nearly enough for retirement.  Northwestern Mutual’s study revealed that 15% of Americans have no retirement savings at all. In fact, 64% of Americans can’t afford to retire.

Understanding how to control spending habits is important. We can start by looking at why we overspend.

Why Do We Overspend?

Most people have no idea what their spending habits are. They are clueless as to where their money is going each month and are shocked when their bank account dips.

Many are impulsive shoppers. They see it. They want it. They buy it.

Exploring sale displays is bad news. Often, people get caught up in the excitement of a discounted item and buy things they don’t need.

Remember: A bargain isn’t a bargain if you don’t need it.

Unfortunately, people get into “keeping up with the Joneses.” If our friends have something, we need it, too. That’s how companies convince us to buy the latest version or the “new improved” model.

Spending can be an addiction just like gambling or substance abuse. To avoid spending you need to know why you’re doing it so you can control it in the future.

Tips on How to Control Spending Habits

Financial advisor Jenny Keefe offers several tips.

• Take stock of how you are spending what you earn

Use a software program, an app like Marygold & Co., or pencil and paper. Write down everything—no matter how small—you spend. Calculate how you are spending your money for a month.

•  Set up a budget 

You can also create a simple budget on paper. Plan for savings as part of your budget. That’s where a program like Marygold & Co. can help you organize your financial life.

• Stop (or at least minimize) spending

This may seem extreme. However, you cannot save money for emergencies or retirement if you have nothing left in your bank account at the end of the month. Pledge not to spend on anything except food, shelter, and essential transportation until you get your spending under control. When approached with a purchasing decision, ask yourself, do I need this or do I want this?

• Take a breath before you spend

Jenny Keefe suggests you sleep on the decision to make any large purchase. The choice to buy a nonessential item may look very different if you give yourself time to think it over.

• Understand that there is no such thing as “a little debt”

Amassing a little debt on your credit cards may seem harmless. But these small debts are not part of your budget. Thus, they are overspending. Even seemingly small debts set you up for financial disaster. They can start a debt crisis that impacts your home, your family relationships, and your mental health. Not knowing how to control your spending habits may result in a great deal of debt that’s hard to get out of.

• Set reasonable priorities

So, here’s the situation: You’ve figured out you are spending more than you earn. The next step is to set priorities. Can you economize on food? Maybe you need to cut out entertainment or eating out. That five-dollar Starbucks coffee was nice but you can’t afford it. Consider taking public transit. Try biking to work and to run errands. When you have looked at your expenditures, decide what must go and where you can cut corners.

• Eliminate items you are not using

Think about things like movie club memberships, Sirius Radio, TV cable options, Netflix movies, magazine subscriptions, gym memberships, country club dues, and packaged bank accounts. Are you getting value from them? Can you afford them? Are there cheaper alternatives?

• Shop frugally

In this day of instant foods, you may be spending significant amounts for convenience. Your food budget may be more than you can afford. Check out Jenny Keefe’s smart food shopping tips.

• If you can’t resist, don’t go shopping

There are ways around this. Try online shopping with a list. Don’t buy anything that isn’t on your list. Avoid shopping for no purpose. That leads to impulse buying.

•  Try Freecycle if you are replacing something

If you need something, check out free resources like Freecycle. Look into stores like Value Village, Goodwill, and consignment stores. Check out garage sales and online opportunities, through social media and other channels.

•  Leave your credit cards at home

According to a study by Thomas, Desai, and Seenivasan in the Journal of Consumer Research how you pay can affect impulse purchases.

A study by Dun & Bradstreet found that people spend up to 18% more when they use credit cards than they do when they use cash.

Avoid overspending by using cash or a debit card to make all transactions. This gives you a greater awareness of how much you are actually spending. If you carry only as much cash as you can afford to spend, it curbs overspending.

•  Know your triggers and how to avoid them

Our tendency to overspend may be triggered by emotions. Identifying these triggers and removing them alleviates the temptation and the opportunity to overspend.

Some people spend more at certain times of the day. Avoid shopping during those times. There may also be certain environments that encourage spending, like sales, favorite stores, craft fairs, flea markets, or holidays. Detour around these environments if they are triggers.

When you are feeling sad, happy, or depressed are you more prone to impulse shopping? Don’t go to the mall if those moods make you shop. Go for a walk or take a hike instead.

How Technology Can Help

Mobile banking apps like that available to customers of Marygold & Co. can help curb spending. With innovative features like Money Pool Savings Accounts, customized notifications, and mobile push notifications to ensure your goals and relevant banking information are always top of mind.

Technology like that in mobile banking apps helps users keep track of their spending and their savings. This will go a long way to curbing spur-of-the-moment purchases.

Mobile apps from major financial institutions like Marygold & Co. provide an easy way to view account information without sharing personal information. Mobile apps will help you learn how to control your spending habits by tracking your spending more.

The banking app provides up-to-the-minute account information. This allows clients to assess their ability to make or to refrain from making spontaneous purchases.