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Guide: How to Avoid Overspending

In 2017, South Africans only saved .2% of their income. Believe it or not, that number actually represented a positive increase over what the savings ratio had been in the past.

The truth is saving money is a skill that often goes untaught. If you’re a citizen of South Africa and are looking for a primer on how to be more responsible in reguard to overspending, this guide is for you.

Our team at LittleLoans are proponents of being money smart and to that end, we’ve put together some tips for you to become more fluent in your finances!

1) Understand Your Expenses

The biggest culprit in overspending is not understanding what your expenses are. When we say expenses, we mean the things you pay for on a recurring basis.

There are two categories of expenses.

Necessary Expenses

Necessary expenses are things you need to purchase in order to achieve a reasonable standard of living. These expenses encompass the following:

  • Rent payments
  • Mortgage payments
  • Utility bills
  • Groceries
  • Necessary transportation (ex: getting to and from work, picking up your children, etc.)
  • Medical expenses

The first step to making sure that you’re not overspending is by quantifying how much you need to budget for your necessary expenses monthly.

Take a moment and add up all of your necessary expenses. The number you come to is the absolute non-negotiable amount of money you need to make in order to live reasonably.

If you’re finding that your necessary expenses are higher than your income, you need to take measures to drop the number immediately. Some ways you can achieve this are by getting a roommate, downsizing your living space, or taking public transit instead of paying for a vehicle.

Unnecessary Expenses

Unnecessary expenses embody the things you purchase regularly that you don’t need. Some examples include:

  • Daily cups of coffee at the shop next to your work
  • Buying lunch from a fast food chain or restaurant during your lunch break
  • Taking an UBER to work as opposed to taking public transit
  • Smoking expenses
  • Alcohol expenses

Add up the monthly cost of all of your unnecessary expenses. The number you come up with you can, at least in part, cut out of your life and funnel into your savings.

2) Limit Spending Money You Don’t Have

Sometimes spending money you don’t have is a necessity. For example, say you or a family member is faced with an emergency and don’t have the funds to cover it. Borrowing the money you need would be the only option for solving your issue.

Still, borrowing money habitually can become costly. Because of that, be sure to borrow money via loans responsibly.

Limiting the amount of borrowing you do can save you money on interest expenses and fees. All of that saved money can go towards starting to build your savings which can help you next time you have an emergency expense.

3) Be Careful With Credit Cards

Credit cards can provide purchase protection and other perks when buying everyday things. They can also have high-interest rates and hidden fees that can hurt you financially.

In order to take advantage of credit card related perks without it costing you anything, be sure to pay off your balance in full each pay period.

You can ensure your ability to do this by not charging more to your credit card then you have available in your checking account. If you’re not sure how much money you have on hand to cover your purchases, make a habit of checking your balance on a weekly basis.

There are apps available for smartphones to help streamline this process.

4) Reduce Impulse Buys and Funnel Money Saved into Meaningful Areas in Your Life

It’s tempting to eat out every day. It’s tempting to buy the newest phone when it’s released. It’s tempting to go to the movies rather than staying in for a home movie night.

After all, those impulse buys isolated don’t cost much money. But consider how much all of those impulse buys could cost you over the course of a year.

Let’s take eating out for example. If you go out to lunch 3 times a week, consider how much you spend doing that. Multiply that number by 4 weeks in a month. Then by 12 months in a year.

The number you come up with may equal thousands. Those thousands could be better served paying for a vacation, upgrading your home, and more.

So next time you make an impulse buy, ask yourself how much this habit is costing you annually. Also, ask what could you pay for at the end of the year if you saved that money.

Wrapping Up Our Guide to Avoiding Overspending

There are a lot of things in the world that tempt overspending. In order to avoid falling victim and ruining your prospect of building your savings, understand your necessary expenses.

Knowing that number will tell you what you need to make each month to sustain your life and if you need to cut back.

After that, figure out what you’re impulse buying. You then need to decide whether those buys are really worth their total annual expense.

This practice will reduce your overspending, reduce your need to borrow money and ultimately, set you on the path to financial freedom.

Our team of LittleLoans wants to be your partner in responsible spending and when needed, responsible borrowing. We offer loan matching services to a network of lenders we trust.

If you ever find yourself needing extra money to get you through a difficult time, you can rely on us to match you with the money you need.

Fill out a loan request to find out what products you qualify for or for more financial advice, read more on our blog!