Antidotes to excess spending

This is the follow up to my previous post - Is Your Spending Out of Control?

A quick recap:

An out-of-control spender isn't just someone who blows their earnings on shopping sprees every month and then wonders why on earth they have nothing left for essentials. Of course these extremes exist, but having an out-of-control spending habit simply means that you spend more than you earn.

Depending on how much you earn and how much you need to spend on essentials, a few luxuries can easily swing the balance so that your money seems to fritter away without you even realising it. Read on to find out the warning signs that your spending needs reining in.

1. Your 'out' is more than your 'in'

Basically this comes down to the main principle of over-spending - you spend more than you earn, and so what comes into your account each month is less than what goes out of it.

What should I do?

The best way to tackle this problem is to realise, today, that you are over-spending and you need to address the issue. Start by keeping a spending diary so that you see clearly where your money is going each month.

Then, drawing up a budget is the next stage to financial peace-of-mind - figure out from your spending diary what you can drop from your regular spending (for example, a daily lunch out can become a more economical and often healthier home-made sandwich), and plot exactly what you have available to spend on what. Stick to your budget and within a few months you should see your 'in' begin to outweigh your 'out'.

2. You're much too friendly with your overdraft, line of credit or redraw facility

It's all too easy to become over-familiar with our overdrafts. Once they're in place, dipping into them to tide us over for the month can seem like a harmless thing to do, especially if you intend to pay that overdraft back as soon as you can.

What should I do?

Look at your latest bank statement and you should be able to see when you were in your overdraft and when you were in credit.

It may be a good idea to count the number of days you spent in credit before landing in your overdraft again as the month progressed. If the days you spent in your overdraft are more than the days you spent in credit, you need to address the problem.

Again, keeping a spending diary and then drawing up a budget is the best way to dig your way out of your overdraft as soon as possible. Once you know where your money is going you can rein in the non-essentials and concentrate all your efforts on climbing out of the red.

It's easy to see your overdraft as just another nifty feature of your bank account, but remember that ultimately it is simply a debt that will need to be paid back - and will more than likely be accumulating interest and/or charges as long as it remains unpaid.

3. Your cash does a disappearing act

Have you ever withdrawn money at a cash-point, intending to use it for any various small expenses that might come up, then peer in your wallet a day or two later and find it has all but vanished? If this happens on a regular basis, and unless you are being beset by a persistent pickpocket, it's likely you've lost a grip on your spending.

What should I do?

Start by keeping a spending diary and monitoring what you are spending money on for a week or a month. Write down every little thing you spend money on, whether that's using cash or using a debit or credit card. You'll start to see how a withdrawal at the ATM goes on a couple of coffees or a quick grocery shop.

Try to identify if there are any areas of your spending that stand out above the others in that they consume a significant amount of your funds in one go. See if there is any way you can reduce this outgoing or get rid of it altogether.

If you are going somewhere where you know you might over-spend (such as a night out or an afternoon of shopping) try withdrawing an amount of cash and leaving your card at home. That way there is a limit on what you spend and once those funds are depleted, you'll know exactly where they've gone and won't be tempted to go and withdraw more.

4. You buy things on impulse

Again, this is another matter of regaining control over your spending habits by monitoring where your money goes, identifying the times when you are likely to spend without thinking, then curbing that habit.

What should I do?

Look at your last few bank statements (or credit card statements), zero in on the 'out' column, and try to identify the times you spent money on something in the spur of the moment rather than making a purchase that was carefully thought through.

If this happens a lot it means your spending is out of control because you are letting the thrill of buying have control over your spending power rather than the other way around. Try to think carefully through a purchase before making it - leave the shop and ask yourself whether you really need it, and if so, whether it might be worth saving up for it or looking for a better price for it elsewhere.

Again, it might be worth leaving your debit or credit card at home if you are going somewhere that might tempt you to spend more than you can afford - and simply take out a limited amount of cash instead. As well as giving you a self-imposed cap on what you can spend, you'll be more aware of what you are spending as handing over cash will feel infinitely more real than handing over a piece of plastic.

5. You spend money on things you don't use

Naturally, why would anyone in their right mind spend money on something just for the sake of it? Spending money on something you don't get any use out of is the same as throwing money in the bin, but in fact you might be doing this on a regular basis without even knowing it.

What should I do?

First, update yourself on what exactly you have going out of your account automatically by way of direct debit or standing order. You can often access this information online, or simply visit your local branch and ask a teller to bring up a list of them.

You may be surprised to find a payment you set up a while ago that you've completely forgotten about but is still diligently siphoning off an amount each month. Ask your bank to cancel it then and there.

Remember however that you should also inform the company in question that the payment has been cancelled, and of course if you are still within a minimum contract period (or any other contract where you are obliged to keep paying) you must see out the contract before cancelling the payment so that you don't incur any penalty charges.