THE BLOG

Why You Spend Too Much Money

06/16/2013 08:11 pm ET | Updated Aug 16, 2013

Liz is a nice lady I met several years ago.  As sweet as she is, she's got a spending problem that is ruining her life.  Her difficulty started two years ago shortly after her husband passed away.  I didn't figure this all out on my own even though she started tapping into her account on an accelerated pace recently.

I only understood what was going on when she told me that she was ordering so much junk from the Home Shopping Network that she could barely get through the hallway in her home.  Sadly, I don't think Liz is going to change until she's broke.  The good news is that you can learn from Liz's problem before you get anywhere near the dire straits she's facing.

Why People Overspend

After talking with Liz, and looking at my own spending habits,  it's clear that a big part of the push to spend originates from loneliness.   Liz lost her husband and doesn't have many people to talk with.  Her solution is to pick up the phone and buy something.  Even though she doesn't need the junk that ends up in her hallway (usually unpacked) at least she gets to talk to a nice man or woman on the phone for a few minutes while she's ordering.

I wish I could say that spending is just a way for desperate people to interact with others.  But everybody does this to some degree or another -- even me.  If I feel isolated, I'm much more willing to break out the credit card and buy something.  It just feels good and provides some momentary relief. And it makes other people pay attention to me.  Fortunately, this dynamic doesn't rear its ugly head all that often.  But it does happen once in a while.

How To Stop Overspending

The first step towards finding a solution to this problem is to simply admit the truth.  Once you acknowledge that you sometimes spend money  just to break out of the isolation, you are deep into the solution.  Still, some the next steps are admittedly challenging.

After owning up to what is really going on, the next step is to understand the consequences of your behavior.  Have you squandered your financial security because of this indulgence?  Have you put off saving for retirement?  Have you ruined your credit score?  Fallen into debt?  What are your results?

The purpose of this step is to get you fired up.  I want you to get angry at that part of yourself that has been so disruptive and destructive.  Don't beat yourself up.  Just tell the spendthrift part of you to beat it.

After you've mustered your mojo, the next action is to dust off your budget.  My experience tells me that it is almost impossible to become financially successful without having a budget.  Nobody adheres perfectly to a spending plan of course.   But having something to shoot for can make all the difference as compared to winging it.  When you have a monthly budget and know where each dollar is supposed to go, it puts emotional shopping in the spotlight -- right where it needs to be.

The final step is to allow yourself to be human.  I mentioned the need to budget in the paragraph above.  And I suggest that you budget an affordable amount for emotional spending.  There is nothing wrong with that if you keep it reasonable.  But set aside a reasonable amount that you can afford and don't go over that amount.

At the same time, there is a very easy and inexpensive parallel solution.  Just get involved with other people outside of shopping or spending environment.  Volunteer.  Start a small business.  Do anything.  Just make sure it isn't centered around shelling out the Benjamins.

Spending money is tricky.  It's not all about providing for your necessities of food, clothing and shelter. There is nothing wrong with having some fun, looking for emotional payoffs and paying for it.  But do this consciously and understand the tradeoffs.  This is the best approach I know of to enjoy your life and be responsible at the same time.