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Do You Know The Signs Of Overspending?

Do you know the signs of overspending?

Do you know the signs of overspending? Since the stay at home order was issued, the sale of Nintendo Switches soared. With so many people staying at home, the demand for gaming consoles soared. During the month of March, the demand for a Switch spiked and became as scarce as toilet paper. Nintendo was not able to keep up with the demand and retailers around the world were sold out. The usual $300 gaming console was being sold on Amazon for over $400. A new console paired with a game was being marketed and sold for over $700. Some looking to buy the gaming console could probably justify the $400-$700 price tag, but most could probably not.

The thought of “is it worth it?” and “am I overspending?” circle through your mind when pondering the thought of forking up that kind of money on a purchase. The thought of overspending can come up with other major purchases like a car, house, or simply weekly groceries. Knowing the signs of overspending can help you become more aware of your spending habits and help you build wealth.

Build a budget using your net income

Being an adult can be expensive. Nothing is free and you have to pay for basic necessities like food, housing, and transportation. Then come other expenses like the gym, occasional dinner out, and entertainment. When we create a budget, we sometimes calculate using our gross pay rather than our net pay. This provides us with an incorrect budget and we often find ourselves overspending. In order to create financial stability, we have to have more money coming in rather than going out. In other words, the sum total of our monthly expenses should be well below our monthly net income.

If our expenses exceed our take-home pay, we will find ourselves in debt. Calculating our monthly budget based on our net income will provide us with the correct amount we can afford to spend each month. If our expenses are over, we need to cut back to stay out of debt.

Budgeting at home

A benchmark for determining the affordability of a home is spending no more than 36% of your gross income. The average annual gross income of an individual in Nova Scotia is about $40,000. This means the average Nova Scotian should spend no more than $1,150 a month on housing expenses. However, the benchmark used doesn’t factor in the taxes that an individual has each month. A more realistic measurement for housing costs should be using 30% of the net income per month. This will provide a better idea of the monthly budget for housing expenses. If you are renting, this can sometimes be a bit harder to manage with rising rental prices. However, understanding housing affordability will help you prepare for buying a home.

Living, and spending, within your means

A credit card is a powerful tool to build your credit score when used responsibly. However, when used irresponsibly credit cards can lead to debt and interest payments. A credit card can be used to make purchases but should be paid off in full each month. When the balance is not paid off in full each month, the remaining carries over with interest. If this continues to grow each month, it is often a sign you are overspending.

Liming monthly expenses on a credit card to what you know you can afford will help limit the amount of overspending. Additionally, limit the credit card to only paying for necessities like food and transportation. These are expenses you know you have budgeted and can pay off in full each month. This will help you build a strong credit history and make sure you’re not overspending in the process.

Strive for savings

One of the biggest indicators of your spending habits is the amount going into savings each month. When we are spending within our means and using the money that we have, we should be able to put money aside every month. A common excuse for not putting money into savings each month is that we don’t make enough money. However, this is often not the case. No matter how much money we make every month; we should be able to set aside a portion.

When our paycheque increases, people tend to increase their monthly expenses instead of putting money into savings. If you are not able to put money into savings, it is a sign that you’re overspending. Assess your budget and see where you can cut down. Add into your budget an amount each month that you are going to dedicate to savings.

When we create a budget, we have a better idea of our finances. It gives us a standard for what we are able to spend each month and what we should set aside for savings. This allows us to compare our actual expenses to what our goal should be each month. We may find that we are overspending and can assess where we can cut back and make changes. Knowing the indicators of overspending and cutting back will allow us to create financial stability and help build wealth. When thinking about saving for your first home, give us a call at Centum Home Lenders! You can give us a call at 506-854-6847 or get in touch with us here!

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