How to stop overspending in 2012

by Neil Faulkner on 01 January 2012  |  17 comments
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There's just one deadly sin that you can have no fun with at all, and it's what's stopping you achieve your goals. Here's how to exorcise it today!

We know we must stop overspending and that, in theory, it’s extremely easy to do so. An HSBC survey 12 months ago found that more than 10 million of us resolved to improve our finances in 2011, yet lots of us fell by the wayside.

If you were among them, now’s your chance to make sure it doesn’t happen again. Don’t resolve but then fail.

Since it was easy, the reason you failed must come from within. Now is the time to examine yourself, so you get it right in 2012.

How do I stop overspending? That's fantastically easy. Simple, straightforward budgeting, combined with money-saving tips and a little tweaking to get it right.

Why should I stop overspending? This is so obvious you can answer it yourself, but it includes greater financial security and emotional well-being.

Why haven't I already stopped overspending? That's today's tricky question.

Overspending by choice
This article is about choosing to spend more than you earn. It excludes the temporarily unemployed, for example, or those too poor to buy any luxuries.

A world with no excess
Imagine no one bought anything beyond the basics for living and a simple social life. Your friends, your family, the nation, the whole world. No one. No one goes on foreign holidays. No one spends hundreds a month on clothes, nights out or fancy restaurants. No one buys the latest, most stylish cars or newest gadgets.

Put yourself in a world where everyone spent just what they needed in order to live and enjoy some basic social interaction, but not a penny more. Would everyone be unhappy? No, because they still have social interaction.

In such a world, would you choose to be the single person out of the seven billion on the planet to stand out from the crowd and spend recklessly? Would you want to? The answer is no, which shows that you only think you need those luxuries because of social pressure, and because of status and status envy.

The sin that's no fun
Former heavy smoker Allen Carr wrote about envy. He told quitters: “Get out of the habit of envying smokers and start seeing them as the miserable, pathetic creatures that they really are.” Those who desire ever more luxuries are miserable too. The more they get, the more they want. They'll never be content.

Charlie Munger – a billionaire but content because he's frugal – says envy is the only one of the deadly sins you can't have any fun with. You might envy other people more when you stop overspending, but many of them don't approve of themselves, and will secretly envy your new discipline.

It's not a crime to overspend, but it's admirable to face up to your mistakes. Recognise this, because you will have to confide in the people whose finances or social activities are linked to yours.

It's all in the head
“For the next three weeks you will have a slight trauma inside your body, but during those weeks, and for the rest of your life, something marvellous will be happening. You will be ridding yourself of an awful disease. That bonus will more than outweigh the slight trauma, and you will actually enjoy the withdrawal pangs. They will become moments of pleasure.”

I've read a dozen psychological studies on overspending, but none of them got to the meat of the matter. In the end it was reading Allen Carr's Easy Way To Stop Smoking that gave me the most insights into the behaviour around it, and I've not smoked a cigarette in my life. We can get inspiration in all sorts of places.

With smoking, the chemical addiction goes within three weeks. The hard, lingering problem is the psychological one, which is why smoking is so similar to overspending. Carr explains how to relish giving up and enjoy the withdrawal. The “pathetic” belief that you must have a cigarette is the same as the pitiful notion that you need, and can't resist, luxury.

The rewards are many
You might previously have viewed people who are good with their money as miserly and dull. Carr's words are just as relevant to frugal people as to non-smokers: “You will now see that they are, if anything, stronger and more relaxed. You'll notice that they can cope with the stresses and strains of life better.”

Budgeting doesn't mean deprivation or condemnation. It means admiration, self respect, financial security, less stress, self esteem, and it means freedom. Paradoxically, it also means you can buy more luxuries in your lifetime, not less. I explained how that works in How to spend less and have more.

No reason to wait
If you go on like this, cutbacks will eventually be forced upon you, and at that point you might not be able to afford to visit your friends. Social interaction is not a luxury, so this is very dangerous for your mental health.

You might delude yourselves that you can afford to keep overspending. Ask yourself: did you decide, when you started overspending, to do so by as much as you have? Did you intend to eat into your savings or inheritance this much, or to grow your debts to their current size? Of course you didn't.

Some overspenders assume they'll make more money eventually and it'll work out OK. But, even if they do, they still won't be able to buy as many luxuries in their lifetime than if they had stopped straight away. Furthermore, consider how fast you have overspent, as measured by your flourishing debts or shrunken savings. The overspend has grown with your income, not shrunk. Do you really expect future income will fix the problem without you consciously cutting back?

I'm yet to meet someone who took control of their finances who said later they regretted doing so. This is your chance. Quit overspending today and rejoice in your decision every day. Print out this article to read again in times of weakness.

More: Guide: destroy your debt | How to spend less and have more | Why house price forecasts are dangerous

“There is absolutely nothing to give up. On the contrary, there are enormous positive gains to be made. I do not only mean you will be healthier and richer. I mean you will enjoy the good times more and be less miserable during the bad times.” Allen Carr on smoking... or overspending?

I have unashamedly converted ideas from Allen Carr's Easy Way To Stop Smoking, which is clearly a fantastic book that I recommend to smokers. I know two people who quit with it. Besides, you'll save a fortune!