Ooops I’ve done it again! Why we overspend.

New Year. It’s never a good time for those who’ve overindulged during the festive period, whether on food or in terms of finances.

It can be hard to avoid the allure of an impulse purchase, whether it’s a bargain in the sales or an online offer that’s just too good to miss. Equally, impulsive purchases that promise the Dopamine hit of a sugar rush are just as difficult to resist when we’re caught off guard. Ultimately, it can be far too easy to spend beyond our means, leaving us with little cash at the end of the month, not to mention a credit card and waistline maxed out to their limits.

Even the most financially savvy amongst us can occasionally waste money on unnecessary items. However, just like any destructive behaviour, understanding the why and how behind overspending can help us break the habit. As a chartered financial planner, and also a qualified nutritionist, I find the parallels between the two uncanny.

Reading on this subject recently, I found an article written by Lydia Smith (Writer, Yahoo Finance UK) in which she explains overspending habits at an unconscious level with the help of the following points:

Here are five of the most common reasons why we do it:

The ‘what the hell’ effect

The “what the hell” effect is a type of bias first coined by dieting researcher Janet Polivy in 2010. According to Polivy, it describes the kind of thinking: “What the hell, my diet’s already broken, so I may as well eat everything in sight.”

Although it’s a scenario many of us restricting our diet may recognise, it can also be applied to our spending. When we’ve broken into a £10 or £20 note, we are far more likely to spend the rest of the change unnecessarily. We fall off the proverbial wagon.

Essentially, once we’ve cheated a little bit, cheating a bit more doesn’t count because – ‘what the hell’ – you might as well. Unfortunately, the only way to tackle this is to be stricter with yourself and to exercise greater self-control, which can be easier said than done.

Easy access to credit

Credit cards, loans, and other forms of credit are very easy to get hold of, either by filling in a short form or a simple online application. Although it can feel like free money, having access to this additional credit can encourage people to spend far more than they can afford to pay off. It’s money they don’t have, just as we eat calories we don’t need.

If you rack up a balance that you can’t repay when it is due, you’ll be charged interest. That interest will continue to build up until your balance is paid off. Moreover, those items you charged to the card in the first place may well end up costing you a lot more. As if that was enough of a logical deterrent, overspending on credit cards can negatively affect your credit score.

Compulsive spending

With so many deals on offer, it can be hard to resist treating yourself now and again. However, problems can arise if you find yourself unable to stop buying things — and if you can’t resist being drawn into sales and offers. That Dopamine hit again.

Research suggests that as many as one in 20 people in developed countries may suffer from shopping addiction, otherwise known as compulsive buying disorder. “While many people like to shop during time off, at weekends, or during seasonal holiday periods such as at Christmas, shopping addiction involves an overwhelming urge to shop and subsequently spend until it begins to adversely affect your life,” the healthcare provider the Priory explains.

“This may include overspending and taking out several store credit cards in order to be able to purchase items, even if you may be aware that this could incur long-term financial debt.”

Underestimating how much we spend

Budgeting means taking note of exactly how much you earn, how much money goes on rent, bills, travel, and food, and how much is spent on less essential items. However, it’s easy to overlook the small purchases, particularly if we pay for them using contactless cards. Ever tried to log a food diary? How accurate or revealing was it?

Whether it’s a coffee, a magazine or a snack, we tend to forget about the small expenditure, but they can often add up, leading us to underestimate just how much we are spending each month. Keeping a money diary can help keep track of these purchases and how much we’re spending.

Special occasions

Even the most careful of spenders can overdo it on special occasions, such as Christmas or birthdays. According to research by the insurance agency Bobatoo, the temptation to overspend increases at Christmas, with 44% of respondents saying they would go slightly over budget and a further 10% admitting they would overspend by a significant amount.

One of the reasons we spend too much on special occasions is because we fail to estimate exactly how much they can cost and how to budget for them. Planning ahead and putting money aside for birthdays or Christmas throughout the year can help, much like a meal plan. It may also be worth having a separate savings account specifically for these occasions too.

When it comes to the question of living beyond our means, we need to be saving more and eating less to live a life in credit.