Overspending Remains the Worst Financial Blunder for Americans; Here's What Experts Say
At a time when the cost of living is a concern for working professionals across the globe, overspending puts a major dent in savings and hinders financial stability for the future. Overspending is fueled either by unnecessary purchases or because of expenses for maintaining a certain social status. For whatever reason, overspending still stands as one of the most significant financial mistakes individuals make leading to inconsistent debt and instability. Even financial experts and analysts who addressed the issue have revealed one common outcome.
Expert opinion regarding overspending
According to financial advisors, one of the common mistakes an individual makes is spending too much on luxuries whether it's expensive cars or jewelry. Barry Glassman, a certified financial planner and founder and president of Glassman Wealth Services shared one of his client experiences where they had spent $1.4 million in the past 18 months on jewelry. He further added, “At the extreme, this is why most lottery winners go bankrupt. They feel like they’ve made it, they feel wealthy, but they don’t realize the difference between wealth and income". Most people do not have the habit of understanding and tracking their finances but once they do, their behavior and outlook towards spending changes.
Another CNBC FA Council member Preston Cherry mentioned, “There shouldn’t be social shame in spending to fund your well-being, present or future". Not all spending is deemed as harmful, it is considered healthy to spend on items till the time they align with your personal as well as financial goals. But there is a fine line between essential expenses and overspending. Once this line is crossed, it hampers your financial growth and dreams.
Habits that leads to overspending
Even if someone has the habit of spending less, it can turn into overspending through small amounts which snowball into bigger numbers. Financial analysts have been assessing the trends and share that tracking the finances has made this habit vanish and has provided a more responsible outlook towards their finances. Ivory Johnson, a CFP and the founder of Delancey Wealth Management in Washington, D.C reveals that "Some retirees may spend too much when they first retire, and be tempted to provide other family members with financial support". Adding further, “I have had to tell clients to put their family on a budget because I understand the impact it’ll have on their retirement. Not everyone is susceptible to overspending".
Overspending can turn risky, especially during the retirement phase as in many cases there is no guarantee of monthly income. Some people end up spending too much in the initial years after retirement, while others are afraid to spend any money at all. Blair duQuesnay, a chartered financial analyst and CFP said, “It is challenging to shift from the good saving and investing habits that lead to a secure retirement to spending down assets. For investors who can afford to spend more, that can be a missed opportunity to enjoy the fruits of their labor, through gifts to family, travel or donations to causes important to them".