Why you live beyond your means and what you can do about it

Before you can improve your financial habits, it is important to understand your motivations. When people spend more than they earn, it is often to fulfil a subconscious need.

Understanding money is relatively simple.

Even if you don’t understand all the ins and outs of complex financial products, most people do understand what good financial habits look like. Spend less than you earn, reduce your consumer debt and save for the future. Money principles are simple.

Human psychology is more complex.

In fact, when talking about personal money management, we’re really talking about our psychological relationship with money. In our society, money touches every level of our hierarchy of needs. Not only is money needed to help meet our basic needs (survival), but it’s also a signal of status (belonging), and an essential aspect of building the lives we want to live and becoming the people we want to be (actualisation).

People are motivated by their own wants and needs.

Fundamentally, our financial problems may be seen to stem from unmet needs. In the case of compulsive overspending, the problem is almost never that a person lacks self-control. Rather, they usually have an unmet need, which they are subconsciously addressing through overspending. They may not say, or consciously know what their needs are; but their actions reveal them regardless.

People who overspend on clothes don’t usually believe they really need all those clothes. More likely, they may be uncomfortable with their body or their status, and they project that problem onto their clothes. Clothing may have helped them feel good about themselves in the past, which started an internal feedback loop. Now, they think they’re always one outfit away from feeling at peace in their own skin.

If you keep trying to fix a problem at the surface level, you’re only going to dig yourself deeper. The answer isn’t always a stricter budget, it may be more self-awareness. It is important to better understand your motivations, to resolve what’s really going on.

The path to financial wellbeing

The path to financial wellbeing is not to necessarily reduce your life to the bare minimum in order to save the absolute maximum. Instead, it’s to take an honest look at your needs and meet them with long-term solutions.

It’s not about convincing yourself never to eat at a restaurant or buy new clothes. Rather, it’s about understanding your motivations and meeting them more purposefully. Create a budget that allows you to do what you desire with purpose; instead of letting yourself be controlled by uncomfortable impulses.

General advice disclaimer

The information contained in this document is provided for education purposes only. It has been prepared without taking into account your particular financial needs, circumstances or objectives. You should consider the appropriateness of the information as it relates to you. You may wish to consult an adviser before you make any decisions relating to your financial affairs.