3659: Why Do Some People Consistently Spend More Than They Earn by Sam of Financial Samurai on Money Mindset

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[00:01:00] This is Optimal Finance Daily. This is Optimal Finance Daily. Why do people consistently spend more than they earn? By Sam of FinancialSamurai.com. And I'm Justin Malek. I read you articles every single day of the year, including weekends and holidays, all to push ourselves back on the right path. So let's keep at it as we optimize your life.

[00:01:26] Why do people consistently spend more than they earn? By Sam of FinancialSamurai.com. As a personal finance blogger, it frustrates me that some people consistently spend more than they earn and then complain why they can't build wealth. Uncontrolled debt can quickly spiral you into bankruptcy. Control your spending.

[00:01:50] Yet, this doesn't scare people enough to stop their overspending habits. It's not just hoodlums that spend more than they earn. Even good people can get caught up into habitual overspending too. Control your spending. One of my friends is an overspender. Nancy is 28 and has a bubbly personality. I've known Nancy since she first graduated from college. She reached out through our college alumni network for work advice.

[00:02:18] Although she didn't make it past the third interview at my old firm, I did give her some tips and introduced her to other personnel that eventually led to another job. We kept in touch and became friends. Many insecure people spend more than they earn. Nancy revealed to me that she feels ugly. With her insecurity, Nancy ends up buying some of the most expensive clothes and accessories on the planet.

[00:02:46] The LV handbag she carried the last time we met cost over $3,500 alone. I guess with a $6,500 a month gross salary, she can afford it. But what about the 25 handbags she admitted to already owning?

[00:03:01] As we talked more, she told me she has over $25,000 in credit card debt and feels the only way out is to open up new 0% balance transfer credit cards to prevent her from getting into more debt. It was a strange conversation because clearly, the best way to get out of debt is to not spend more money.

[00:03:24] However, to Nancy, she felt stuck in a negative debt cycle where spending made her feel beautiful, if only for a little while until she had to spend some more. Why people spend more than they make. There are six main reasons why people consistently spend more than they earn. Money is mental. Number one, self-esteem.

[00:03:50] When we lack self-esteem, we turn to things that make us feel better about ourselves. Shopping to fill an inner void can easily cause people to spend more than they earn. In Nancy's case, clothes and accessories made her feel pretty, and therefore, she continued to spend to keep herself temporarily happy. We are bombarded on a daily basis by how society thinks we should look and dress.

[00:04:18] The fact of the matter is, the TV and movie industries purposefully choose the most attractive people who barely exist in our daily lives. When all you see is someone really attractive, really wealthy, or even really good, it's inevitable we start feeling inadequate. Number two, desire. Another super common reason why people consistently spend more than they earn is desire.

[00:04:45] Desire leads to suffering, but most people don't realize this. When I was 10 years old, I finally got a pair of $40 Reebok tennis shoes I begged my father about for so long. I thanked him profusely and told him, I can't believe people spend so much on shoes so regularly. He then said, $40 shoes have always been around. There are $100 and over shoes too.

[00:05:11] I realized then that desire is never ending if you don't draw a line and cut things off. Financially successful people do not spend more than they earn because they prioritize maintaining financial freedom and independence. They don't let desires for material things steer them off course from growing wealth, investing, and planning for retirement. Number three, keeping up with others.

[00:05:41] It used to be that you'd see your neighbor's new car and want to buy a new car yourself. Trying to keep up with the Joneses is another big reason people spend more than they earn. Now with social media, you get to keep track of all your friends' great lives. You know, the updates from the Maldives or skydiving in Spain. We're now bombarded more than ever by people who want to share with us how great their lives are.

[00:06:06] As a result, we need to do the same or else we start feeling inadequate. The best thing to do is to shut down the constant checking and reflect on what you already have. Number four, lack of knowledge. People don't realize how expensive consumer debt can be. If you pay a 15% credit card rate and pay the minimum each month, your credit card debt will double in five years.

[00:06:35] And if you pay a 20% interest rate, then expect a doubling of debt in only three and a half years. The miracle of compounding works equally as well in reverse. There are people who don't realize that if you pay $500 off your $1,000 credit card bill on the last day, the credit card company will still charge you the one month interest on your entire $1,000 balance. Know the rules, consumers.

[00:07:04] Number five, easy credit. Despite income inequality, there is social equality. Anybody with a pulse can get a credit card with a $1,000 line of credit nowadays. Heck, credit card companies are marketing their cards to students who most don't even have a steady income. If there is a plate of French cruller donuts, I guarantee you that I will eat at least one.

[00:07:31] Easy credit leads to problems and definitely tempts people to spend more than they earn. And number six, no budget. Anyone who doesn't want to spend more than they earn benefits from a budget. If you don't know how much you make after taxes and retirement contributions, then you don't know how much you can spend. You'd be surprised how few people actually sit down to make a budget.

[00:07:58] Sure, the first budget may be a pain to do, but afterward, everything becomes much more automatic. To improve your finances, grow your wealth, and stop overspending, you have to know how much money is coming in and make sure less is going out. Go on a no-spend challenge for a month and see how you do. Learn how to suffer to build wealth. Over a 10-year period, you will likely grow more wealth than you could ever imagine.

[00:08:28] Logic is not enough to help people spend less money. Everybody, except for the government, knows that spending more than you make for an extended period of time leads to financial failure. Yet there are trillions of dollars in revolving consumer debt outstanding. It's like the, you only live once economy is here to stay. Life is too easy in developed countries.

[00:08:54] We become soft, indebted, and lazy, just as creditors want us to be. If you go to India, where micro-lending is becoming big business, research what their default rates are compared to the United States. Default rates are way below industry norms because each person recognizes how difficult it is to get credit. In addition, they cherish the credit for a better life and do not want to disappoint their villages

[00:09:22] which are depending on such loans and future loans. People who spend more than they earn can change. Bad habits are hard to break, but it's not impossible. If you or someone you care about has an overspending problem, I have a vast archive of budgeting and savings articles that can help you get your finances back on track. A first step to change is to understand how good we have it.

[00:09:52] Do you really need a fourth pair of designer jeans or a new car every three years when the majority of the world can't even afford to pay cash for the typical $21,000 Honda Civic? If we can visit developing countries to gain more perspective how luxurious our lives are in developed countries, I'm positive we'll be able to reduce the act of spending more than we make significantly. Imagine a world where nobody welched on their bills

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[00:12:46] Use code OPTIMAL at Monarch.com to get your first year of Monarch core half off at just $50. That's 50% off your first year at Monarch.com with code OPTIMAL. Thank you to Sam. I like that he framed all of this as money being mental, because I think that's the part we usually skip over. We treat overspending like a math problem, when really most of his six reasons come back to a feeling.

[00:13:16] Insecurity, desire, wanting to keep up, and so on. And that shoe story stuck with me. The $40 shoes felt like a lot until he learned there are $100 shoes, and it just never ends. Desire keeps moving the line. The only thing I found that really pushes back on that for me is a little gratitude practice. I used to write it out, and now I mostly just reflect for a minute before bed.

[00:13:44] And one thing I've noticed is how easy it is to always be looking at the next thing, and how rarely I stop to feel okay with what I already have. It doesn't make the wanting disappear, but it does help. But this isn't only about willpower. If the spending is filling some emotional gap, a budget by itself won't fix that. The feeling underneath needs a little attention too. But awareness is still where it starts.

[00:14:15] For more on this kind of stuff, come with an Optimal Living Daily, where I read articles about awareness, mindfulness, and more. But in any case, the next time you feel that urge to buy something, just pause for a second and ask yourself why. Good stuff to think about today. Thank you for being here every day and optimizing your life along with me. It means a lot. Have a great rest of your day, and I'll see you tomorrow as usual, where your optimal life awaits.