You're walking by a clothing store and from the corner of your eye you see a
shirt that you think would look great on you a few minutes later you find
yourself walking out of the store with that shirt we all know that it's much
easier to spend money than it is to make it and while buying new things from time
to time is ok we can find ourselves in financial trouble pretty quick if our
spending gets out of hand therefore in this video I will share with you 10
reasons you can't stop spending money and if you're new to the channel then
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believe it or not millions of Americans live beyond their means between the rise
in social media and the ever-increasing number of new gadgets to buy resisting
our temptations to spend can be nearly impossible unfortunately not being able
to control these temptations can have dire financial consequences in fact a
recent survey found that one-third of people ages 30 to 49 had more credit
card debt than savings imagine being middle-aged and having absolutely
nothing in your bank account to show for all your years of work I think the
question most of us need to ask ourselves is what drives us dispense so
much behavioral economists have been studying the nature of spending for
years and have identified that 10 main reasons people overspend which I will
now outline reason number one best alternative spending in a world of
scarcity choosing one thing means giving up something else when we spend money on
one thing its money we can't spend on something else now or later for instance
if you choose to attend a four-year college program then you're giving up
the seller you could be making if you instead worked full-time for these four
years or if you only have $1,000 to buy a new TV then the opportunity cost is
spending that same money to buy a new computer therefore there's an
opportunity cost to everything we do and that cost is expressed in the terms of
the next best alternative for example the true benefit of buying a new car can
be assessed in terms of other equally significant things we could have done
with that money unfortunately when the next best alternative option is
considered people tend to lack the ability to abstain from choosing between
either of the two options and instead decide to buy both so in the example I
just provided that same person not only by the TV with $1,000 he had
but Dan would charge the new computer to their credit card causing them to
overspend to satisfy the temptation to have both devices as this behavior
becomes more routine the overspending only gets worse making your chances of
building wealth slim to none reason number 2 tagged money have you
ever been gifted money for clothes or to put towards a new phone and while you're
drowning it that you still use that money for its intended purpose you see
most of us perform mental accounting by dividing our money into separate mental
accounts such as accounts for food clothes rent school supplies and play
money and when done right we spend based on the dollar values we attribute to
these categories in short we only consider the opportunity cost within a
specific account without looking at the bigger picture for example you may have
a line of credit with $5,000 outstanding that you should put your gift money
towards but because it was gifted with the intention of being used to buy a new
phone or outfit you have mentally tagged that money into its respective account
and will choose to not use it for more beneficial purposes instead you should
be looking at your finances using a holistic perspective when you have a
cash inflow assess where the money will be best put to use rather than
allocating it using mental accounting reason number 3 special occasions have
you ever been on a diet and decided that just for one night you would break your
diet to celebrate a special occasion it could be your birthday a holiday or just
a random Friday night and well it feels good to indulge from time to time
unfortunately those calories still count well the same phenomenon takes place
when it comes to spending we tend to overspend on special occasions birthdays
or Christmas because we don't keep track of just how many of them we have
consequently we end up spending over a normal budget failure to incorporate an
exceptional purchase into our budget as one in a series of special purchases can
encourage overspending luckily you can budget for infrequent expenses by
creating special savings accounts earmarks specifically say for birthdays
so that you don't hinder your savings progress by enjoying yourself from time
to time reason number four the present bias present bias occurs when
individuals place extra weight on more immediate rewards
then those in the future for example my future self may want to buy at home but
my present self wants to splurge on a tropical vacation well it often seems
illogical to be giving up the potential for a larger future rewards in exchange
for momentary pleasures the reality is that the further into the future the
roar it is the harder it is to keep its value in mind in fact this is the reason
most people fail to put away money required to fund their retirements while
most people could be millionaires in the retirement years by investing
consistently from an early age they instead succumb to spending on $8
coffees in the newest iPhone in essence the more we disregard our long term
interests in favour of immediate gratification the more likely will be to
have an overspending problem which so I often preach reading down your short
medium and long term financial goals and reviewing them daily so that you can
keep those longer-term rewards at the forefront of your mind reason number
five the ease of credit card spending in addition to the present bias it makes
this over value or current spending versus future rewards the use of credit
cards to pay also increases the potential for overspending you've
probably experienced it yourself that it's much easier to swipe your credit
card to pay for something then it is to open your wallet and pull out cash and
this phenomenon has been researched extensively in fact a 2001 study found
that shoppers who rely on credit cards as their form of payment
compared to those who only pay with cash spend a hundred percent more hence
making overspending that much easier and this makes sense
when you pay with cash you can literally see your funds diminishing whereas
paying with credit doesn't cause the same emotions to resonate so if you want
to spend less take out the cash you want to spend every single month and once
that amount is gone you must wait until the following month to make any of your
desired purchases reason number six though what the hell effect you're
halfway through the month and without realizing it you have burned through the
entirety of your budgeted spending so you decide to continue spending and say
to yourself that you'll do better next month we've all done it and this
behaviour unofficially called the what the hell effect but what the hell
effects the desk that fallen off the wagon causes a feeling of failure which
leads to more indulgence for example let's say you go for a fancy dinner you
know the meal will be pricey and you get there and you see the menu you
know for sure it will be an expensive evening after ordering your meal you
decide to order more as you have already identified that this outing will blow
your entertainment budget for the month putting the what the hell effect into
action in reality this effect is quite irrational as stopping once you've hit
your limit is much more financially beneficial than continuing to spend so
if you find yourself saying oh what the hell let it be a cue that you need to
close your wallet and cut your losses reason number 7 lack of willpower
willpower refers to effortful control that is exerted with the purpose of a
controlling or impulsive behavior I like to look at willpower is a resource that
we deplete over the course of every single day you start each day with a
full tank of willpower and as its depleted you become more inclined to act
on impulse and are more likely to be swayed by desires urges and cravings
although you may regret them in the long run this insight suggests that shoppers
who are tired or distracted will likely increase their impulsive purchases this
is why you need to ask yourself how much willpower you have available in making
financial decisions if you are well rested and relaxed you will be in a much
better situation to make good spending decisions than if you had just finished
a full day's worth of work and are stressed out by all the work you foresee
yourself having to do the following day well your willpower be a tool and not
your kryptonite reason number 8 retail therapy some people really stress by
working out others talk out their feelings with their friends and sadly
some people resort to compulsive spending to overcome their emotions
well detrimental to your bank balance the dopamine spike the spending offers
has been proven time and time again to provide an immediate improvement to a
Shoppers mood you see shopping all those people that
visualize themselves in a better life where they're dressed in nice clothes
are surrounded by nice things buying makes these visualizations a
reality there's no doubt that this form of therapy works which sliced so many
people partake in this behavior in fact a 2016 survey found that 96% of adults
and 95% of teens participate in retail therapy making spending a mood enhancing
tool used by just about everyone reason number 9 shopping addiction beyond
periodic retail therapy lies the potential
developing a real shopping addiction a shopping addiction is characterized by
an impulse control disorder and about 6% of the population could be considered
compulsive buyers now a person cannot be classified as either a compulsive buyer
or not this disorder exists along a continuum in reality there are excessive
shoppers and then there are compulsive shoppers they buy things they do not
need and often cannot afford and place their work their families and their
mental health in jeopardy some of these people who end up in bankruptcy or binge
buyers suffering from a disease similar to alcoholism the most effective first
step for treatment is to identify why and how you're shopping initially became
a problem experts suggest starting a journal to keep track of your triggers
which is the first step in tackling this overspending issue reason number 10
self-justification the mind is a powerful tool and it can convince us of
just about anything one of which is that we deserve to spend money justifying our
choices to not only ourselves but to others around us is part of being human
making sense is a deep human motivation but making sense is not the same thing
as being correct for example the person who has bought a luxury at him but feels
guilty about it may try to alleviate his guilt by coming up with an additional
reason to justify his choice such as it was on sale I just had to buy it but
this doesn't mean that by justifying the purchase to themselves that it made the
item cost any less this is why you need to create a list of want and need items
when considering your purchases by writing out the items you intend on
purchasing you can mentally deliberate on the level of necessity so that you
don't self just fight frivolous purchases as frequently which will save
you a ton of money over time thanks for watching if you want to go from the life
you have to the life you deserve then hit the subscribe button now