Overspending is probably the biggest reason people get into financial trouble. I’ve seen six figure earners living pay-check to pay-check. I’ve also seen people with average incomes build significant wealth. The differentiator is their attitude to spending.
There are lots of ways to overspend. Buying a bigger house than you need, fancy cars, even just grabbing a cup of overpriced coffee. I’m going to focus on day to day spending, as it’s where most people can quickly make the biggest impact.
The good news is there’s an easy way to stop overspending. It’s so easy, you can do it right after you’ve read this:
Set a weekly spending budget. Take it out in cash at the beginning of the week
It sounds too simple right? It is simple, and it works.
Set a weekly spending budget
My guess is most people don’t have a weekly budget. They tend to just spend, check their balance infrequently and hope they don’t run out between being paid. It’s not a good strategy. To not overspend, you have to know your limit. Even then, it takes quite a bit of work to stay in it.
To find that limit, total up your regular outgoings (house, car, groceries, gym etc.) and subtract it from your income. What you’re left with is free spend. I appreciate this is overly simplistic and doesn’t allow for saving, but you get the idea. You need to come up with a budget for your free spend that you will stick to.
Let’s say you’re left with £1,000 as free spend. That’s roughly £250 a week — anything more and you will overspend.
Take it out in cash at the beginning of the week
At the beginning of the week, take out £250 in cash and commit to not using a card.  It’ll take just a few days before you notice how powerful this is. There’s something about having a week’s allowance in your pocket — it makes you more conscious about spending.
You’ll notice a few things start to happen. You start to anticipate significant spends and make sacrifices to compensate for it. You’ll be extra frugal at the start of the week, because it sucks to finish out the week on a shoestring. You’ll find yourself doing mental calculations each time you spend. What % am I spending? How much will that leave me with for the rest of the week? Is is enough for what I have planned? You’ll also be less susceptible to impulse buys. You’ll still get the urges, but they will follow with thoughts like do I really need to be spending this money?
Let’s take a couple of examples from my own life:
Catching up with Barry
My friend Barry visited me on Wednesday. We often have a blow out and eat somewhere fancy. I thought about this on Monday and realised I could easily blow two thirds of my weekly budget in an hour. I would need to make a sacrifice or two.
I spent hardly anything on Monday and Tuesday, so I could go into Wednesday with nearly the full weekly budget in my pocket. We ate somewhere nice, but not particularly fancy. I paid for the meal, which came to about 25% of my weekly budget. With four days left in the week, I can now stick to my budget. With a quiet weekend, I may even have some left over. I wouldn’t have had any of that internal dialogue without a weekly budget and the cash in my pocket. I would have just paid on card and not given it a moment’s thought.
Last week, I stumbled across a gymnastic course I wanted to do. I knew it would provide me with value. It was also affordable and on offer.
Normally I would have just bought it immediately, without a thought for how it affected my budget. Now, I had a dilemma. I was running short for the week as it was and had a few things I wanted to do at the weekend. If I bought the course, I would be in overspending territory.
I went back and forth for a few days and finally decided to buy it. My reasons were that it was high value and on offer. It also wasn’t particularly expensive — about 30% of my weekly allowance. Because I was already tight for the week, I ended up overspending by about 20%. I guess it wasn’t the right thing to do, but it also wasn’t a big mistake. It made me determined to come in under this week to make up for it.
Again, I wouldn’t have had that internal dialogue if I didn’t have a weekly budget and the cash forcing me to think about. I definitely wouldn’t have paused before buying it. And, I wouldn’t be trying to come in under this week to make up for it.
Give it a try, I think it’ll work for you too. Figure out your free spend budget and take out the cash at the beginning of the week. Avoid any spending on card throughout the week. Notice how things go. I’m think you’ll start having some of that internal dialogue and will spend less.
 If you are in a situation where you cannot avoid using a card, just do it and allow for that spend in the week. Aim to be over at end of the week or start the next week short — to the amount you spent on card.