Those new running shoes look tempting, and they are on sale. Or maybe you're tired after work and would rather order a pizza than cook a meal. Maybe you've been working hard all week, and a movie and dinner out on Saturday seems like a good reward.
There's nothing inherently wrong with these purchases. However, if they lead you to go over your household budget for the month, then these purchases can derail your financial health.
Overspending on discretionary buys scuttles more than a few household budgets. Also, that overspending can add up to significant debts or lost opportunities over time.
Here's a look at how easy it is for overspending to derail a budget.
Each month you hang your budget on your refrigerator door, determined to meet it. Then, when you get toward the end of the month you discover that your money is running out.
There are usually two culprits here: Overspending on emergencies and overspending on discretionary items.
You might overspend if your car's transmission goes on the fritz. You might overspend if your water heater suddenly floods the basement. Those are unexpected, emergency expenses.
However, you might also overspend by buying a premium coffee at the drive-through every morning or renting dozens of movies from your favorite online streaming services. These are examples of overspending on discretionary items.
The good news? You can take steps to prevent both types of overspending.
Changing bad habits
First, make sure to add a line item to your household budget for emergency repairs, medical expenses and other unexpected emergencies. If no emergencies pop up, that is good. If they do, you'll be able to pay for them without breaking your budget. You should also build up a rainy day emergency fund, savings that you only use to cover emergencies. Having such a fund prevents you from either busting your monthly budget or racking up credit-card debt to pay for emergency expenses.
Stopping your discretionary overspending requires that you change your habits. First, realize that you have a budget for a reason. It makes no sense to budget if you are willing to overspend just because you'd like to catch the latest movie on opening night. Secondly, be realistic with your budget. Make sure that you set aside enough money for such items as entertainment, dining out and food. If you are always overspending on these items, it might be time to rework your budget.
It helps, too, to chart your discretionary spending in a notebook. When you look over this spending journal, you'll see just where your discretionary dollars are going.
There are definite long-term costs to overspending. For instance, when you overspend, you are wasting dollars that you could otherwise deposit into savings accounts or other investment vehicles. That becomes money that never has a chance to grow from compound interest.
Think, too, about how much better it'd be to take that extra $100 you spent on movies and dining out toward paying down your car loan or credit card debt. If overspending forces you to put other purchases on your credit cards, then those extra iced coffees are adding to your high-interest rate debt.
If your household budget is continually breaking, maybe it is time to take a closer look at your discretionary spending.