How to Rein in Overspending

Whether you’re planning for retirement or preparing for a large upcoming expense, putting away money is a crucial step toward achieving virtually any short- or long-term goal. Unfortunately, one unavoidable essential can get in the way of this: spending. From rising grocery prices to substantial mortgage and debt payments, various costs can whittle away your paycheck soon after it hits your account, leaving very little for you to sock away for later.

What’s important to remember, however, is that not all spending is necessary—and, in fact, some of it could be downright wasteful if you’re not careful. If you’re eager to take better control of your finances, this guide can help you understand different categories of spending, identify where you may be overextending, and discover opportunities to save more money.

What is spending?

The term “spending” can generally be split into four categories: living, fixed, variable, and discretionary. The first two are the most essential and also eat up the most significant amount of your income. Living expenses include your rent or mortgage payments and property taxes, while fixed expenses encompass costs like loan repayments and insurance premiums. Though these vital costs may consume much of your funds, they are generally constant, making them fairly simple to anticipate when planning your monthly budget.

Next are variable expenses, or necessary costs that fluctuate based on market factors or your personal habits. Fuel, groceries, and utility payments are a few examples that fall under this category. Finally, you have your discretionary expenses. These are the fun purchases—which can also make them the trickiest to manage. They include entertainment, dining out, recreational shopping, and leisure travel and, like with variable expenses, will probably vary each month depending on your plans and inclinations.

Each type of spending has its purpose and degree of importance, so spending in itself isn’t the issue—it’s when we overspend that we can get into trouble. This term can be taken to mean prioritizing unnecessary expenses, either unknowingly or carelessly, over essential ones. It could also refer to engaging in spending patterns that interfere with your ability to save up for certain goals. And, of course, there’s the classic definition of simply spending beyond your means.

If you’re seeking a solution to your spending woes for any reason, you may be relieved to know there are many strategies that can help—here are four top ones to consider.

Downsize discretionary expenses

The best way to tackle your overspending is to start with the least necessary expenses: discretionary ones. Thankfully, these are also often the easiest to adjust. Review your past statements to quantify how much you’ve been spending in nonessential categories, then look for areas where you can make cuts, such as by eliminating streaming services or only dining out once per week. Consider using a dedicated budgeting app like PocketGuard to establish limits for your spending and get alerts when you’re approaching a preset restriction. Your bank or credit union app may also offer such features.

Of course, it’s one thing to set a budget for yourself and another to stick to it. To help solidify your discipline, it may be useful to reflect on the motivations behind your spending habits. For example, a common cause of discretionary overspending is social pressure; fashion trends and friends who engage in expensive activities may tempt you to splurge at alarming rates. Additionally, look out for any emotional triggers that tend to lead to impulse spending; so-called “retail therapy” can temporarily stymie negative emotions but also lead to destructive shopping. If you identify any driving factors you aren’t sure how to address, consider speaking to a therapist or financial counselor. With their expert guidance, you can put yourself on the path to improving your shopping mindset.

Shrink variable expenses

Another wise move is to assess your variable expenses. As with the discretionary category, evaluate your bank or credit card statements to identify spiking costs, such as for fuel or groceries, then use a budgeting app to help set limits where possible. If you’re struggling to stay within them, try price-cutting measures like meal planning or carpooling and turn to resources like Energy.gov’s Energy Savings Hub to find ways to reduce excessive utility costs.

Slash essential expenses

Fixed and living expenses are more difficult to adjust, but it is still possible to address them. For instance, you could consolidate loans to reduce your interest rates or monthly payments. Or consider speaking to an insurance professional about cutting your insurance premiums, which may involve tailoring your existing policy or shopping for a new one.

Housing costs are even trickier to lower since doing so may require a more complex change like downsizing your home or refinancing your mortgage. These steps are certainly doable—particularly if you discuss your needs with a real estate agent or mortgage professional—but you may want to focus on modifying your discretionary and variable expenses first.

Choose saving over spending

Prioritizing saving is one of the most effective strategies to reduce spending—after all, if funds are tucked away in another account, they won’t be available for you to use now. Consider adopting a strategy like the zero-based budget, which involves assigning every dollar you earn to a specific category, including savings. So rather than simply allocating funds for your living, fixed, and variable expenses and leaving the rest in your checking account, you would direct most of what remains into high-interest savings or other investments, apportioning only a small chunk toward discretionary funds. This approach helps make saving habitual rather than an afterthought and encourages you to take on new expenses only after you have satisfied your monthly savings minimum, enabling you to set stricter parameters for fun spending.

So how much should you be saving? It may vary depending on your specific situation and financial goals, but as a general rule of thumb, aim to earmark at least 20 percent of your income for an emergency fund, retirement savings, and other nest eggs. Even if this target seems unattainable now, what matters most is that you save something. Over time, you can gradually adjust your expenses until you can reasonably set aside 20 percent.

As you navigate the journey of improving your spending, keep in mind that you don’t have to go it alone. Consider reaching out to a financial professional or signing up for free budgeting courses online—these resources can assist you in establishing better financial habits and taking new steps toward ongoing fiscal wellness.