Want to know how to avoid overspending? Do you feel like you’re great a initially saving money but keep having to raid your savings? You’re not alone. Millions have the best intentions when it comes to saving money but overspend and miss their financial goals.
As a result you might keep raiding your savings to compensate for overspending. In reality, setting a savings goal and putting money aside is only half the battle. You need to know how to avoid overspending. You might be a super-saver but prone to eating into your nest egg because of overspending.
New research shows younger adults are leading the way when it comes to saving for the future. but they’re also the most likely to have to raid their nest eggs because of overspending. Whilst it’s great to be setting savings goals by a young age, it’s key to learn how to protect those savings.
Please note: This is a sponsored article by HSBC to support with their savings survey outreach. This article will contain sponsored and affiliate links. This should not be considered as financial advice, you are responsible for your own financial decisions.
How To Good Are You At Saving Money?
A survey by HSBC suggests that younger people are way ahead of their older counterparts. When it comes to saving money, 55% of 25-34-year-olds are working towards a savings goal. This number drops to just 36% when you include the rest of Britain. If you are female, married (60%) or living in the South-West or North-West of England then congratulations. You are also more likely to have a savings plan.
Here’s the catch.
If you’re aged 18-34 you’re also more likely to raid your nest egg due to overspending. In fact 39% of those respondents admitted to this but in fairness there were some good reasons:
An unexpected life event (40%)
Dipping into savings to make up for overspending (29%)
Setting a goal that was too high (10%)
This meant that just 4 in 10 (39%) of people in Britain say they have managed to reach a savings target!
How Are Britain’s Trying To Save?
HSBC also reveals some interesting insights into our savings habits. Cash (53%) most popular way across the country to put money aside for the future. Although, there were some interesting variations.
Londoners (6%) were using cryptocurrency to save.
The East Of England (23%) were more likely to invest in shares
Scotland were fans of the Pension (35%)
Wales into Gold (4%) and Antiques (4%)
Disappointingly, only 55% of the population say they’re actively saving money for the future. The silver-lining 31% are investing in pensions and 16% in shares. Although, the survey also found a gender divide here also. With Men more likely to invest into a Pension (35% vs 26%) and nearly twice as likely to invest in shares (21% vs 12%).
The study, carried out by YouGov, also uncovered that women (40%) more likely than men (32%) to be using a plan to guide their savings strategy. This seems to suggest that it’s not a lack of intention that leads to a lack of savings.
What the survey findings suggest is that we need better approach to saving money. Mostly, to avoid overspending and dipping into our savings.
How To Avoid Overspending: 5 Simple Steps To Successful Savings
The survey by HSBC highlights that 40% of respondents raided their nest egg because of an unexpected life event. It’s going to be disheartening to save up, to then see your savings reset to zero. I’ve seen this in the past with Family member and friends. It only takes your car or boiler breaking down to kill your savings.
#1 Build An Emergency Fund
With this in mind, prepare intentionally for these emergencies first. Building an emergency fund is an important first priority. Many would argue that it should even come before paying off expensive debts. As you need a cash buffer to be able to afford to live. Psychologically, having a cash savings cushion can also do you a world of good. Even if you have debts, cash can make you feel like you are not a rock bottom.
Emergency funds usually take the form of 3 to 6 months living expenses. This can vary depending on what you personally feel comfortable with. Other emergency funds may take the form of sinking funds.
This is where you set aside money for a specific purposes. You then have it to spend when the situation arises. For example, you might have a car maintenance or house repair fund. When something breaks, you are secure in the knowledge that you have the money to cover it.
#2 Pay Off High Interest Debt
Pay off expensive debts. This means paying off interest accruing credit cards. The higher the interest, the more it’s harming your finances. Especially if the interest on your credit card is higher than the amount you are earning on your savings.
This is not to say all credit cards are bad, in fact they are often unjustly demonised. Credit cards can be useful if used responsibly. Credit cards with an interest-free period can help you with cash flow and to manage your debts. You can also use credit cards to gain rewards such as Avios Points.
The important thing to remember is that you should pay these types of credit cards off in-full every month. High interest debt is going to erode your financial plans and stop you saving. So delete your debt, before it deletes your savings pot.
#3 Do This One Thing Every Pay-Day
Saving consistently comes down to automatically putting money into your savings each pay day. You have to pay yourself first. It’s the only way to consistently over months of even years.
Saving money is not only about moving large amounts of money, you can save little and often. It’s about creating the habit more than anything.
You can set a financial goal, open a savings account and move money into that account each month. Set and forget. That way, you almost don’t realise you are missing the money. This is the method I used to save £12,000 into my Help To Buy ISA.
Focus on small habit adjustments rather than large sweeping lifestyle changes. This will aid you in creating pockets of money to pay of debt or save. Money apps such as Snoop or Cleo can help you to analyse your savings by category to highlight where you can save.
#4 Set A Realistic Savings Target
One of the key findings of the HSBC survey is that 10% of respondents set an unrealistic savings goal. In order to stay motivated and on target we need to be clear on our money goals. HBSC also have a budget planner and savings goal calculator.
Money management apps such as Nova Money, can also help you set realistic goals and stay on track. The AI based money app can analyse your spending to calculate your savings capacity (how much you can save each month). You can then set a savings goal and it will tell you how realistic or unrealistic this goal is.
Learning how to avoid overspending comes down to setting a realistic savings goal each month. You then need a way to track and maintain your progress. This means you need some kind of overview of your finances. Money apps can certainly help with that.
#5 Learning How To Avoid Overspending
The critical finding in the HSBC survey is that 29% dipped into savings because of overspending. You can set all the goals you like and get nowhere. It will be like swimming against the current. I think there are two aspects to consider here:
Prioritising What You Love (cutting what you don’t)
You cannot have everything, everywhere, all of the time. You need to get specific in your attitudes about your lifestyle. Do you want to go out every weekend partying or do you want a luxury holiday? Are you saving for a car or for a house? Do you want to buy luxury clothes or to save for retirement. You can save for multiple priorities at the same time, but you can’t have it all.
What are the three things in life that are important to you? What are the three things that are not. Spend money on the first three and cut mercilessly on the latter. Knowing how to avoid overspending comes down to prioritising and funnelling your money. It needs to flow in the direction you want it to.
Use Technology To Your Advantage
Don’t try to do it all in your head. That’s going to be exhausting. Use spreadsheets, online tools andapps to manage your money. Automate, automate, automate.
Don’t do everything manually, set up direct debits, standing orders and ring-fence money. These are my top three tips when it comes to learning how to avoid overspending.
Don’t use willpower, use habits. Habits are 100x more powerful than your willpower. When you forget, can’t be bothered or want to overspend your habits will override these feelings. You can’t spend money if it’s already moved from your current account to a savings account.
At least there is more friction between withdrawing from a savings account than just paying with your debt card. Check out my list of apps for superior money technology.
Conclusion: How To Avoid Overspending
We’ve talked about the benefits of ring-fencing your money to avoid overspending. So, where can you save to achieve your financial goals? Well, HBSC has some excellent savings accounts. Their savings accounts can earn you 1% on your savings and invest with a stocks and shares ISA.
Whilst I’m a huge advocate of challenger banks, I still have a current account with HSBC. I personally know that they offer great customer service. I can also securely and safely connect my HSBC account with money management apps mentioned above.
You can also read more survey statistics and guidance on meeting your savings goals here. The more you read the better when it comes to knowing how to avoid overspending!
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