Have you ever looked at your bank account and wondered, “Where did all my money go?”. If so, you’re not alone. According to a 2022 survey conducted by Financial Post Canada, half of Canadians (51%) are concerned about their financial health. However, most have not adjusted their spending habits, such as picking up extra items at checkout, buying more than planned during sales, and using a credit card to make payments.
Poor spending habits can be hard to overcome. You get stuck in a repetitive cycle, and if you lose your motivation for a second, you can fall back into the vicious pattern. But it’s not impossible. To succeed, you must understand why you spend the way you do and find solutions that effectively confront the problem. From there, being consistent and accountable will help you to disrupt those negative habits and replace them with smarter choices.
In this article, we’ll explore the reasons behind bad spending habits and walk you through practical tips and strategies to help you squash them for good.
What causes bad spending habits?
Before you can fix a bad spending habit, it helps to understand where it comes from. Here are some common and proven causes of poor spending.
Lack of financial education. Without a solid understanding of debt management, investing, interest rates, cash flow planning, and other money-related concepts, it’s easy to make poor spending decisions.
Emotional spending. Some people spend to boost their mood or confidence when they’re feeling stressed or anxious. This habit, known as retail therapy, can quickly spiral out of control.
Impulse buying. Making purchases on the spot without thinking through the transaction can deplete your bank account and lead to debt problems.
Lack of budgeting and tracking of spending. Spending money haphazardly without a clear plan or self-imposed limits can quickly lead to overspending and massive debt.
Peer pressure or lifestyle comparison. The desire to keep up with your friends, family, co-workers, and even social media influencers can strain your finances.
Easy access to credit. Having too many borrowing options at your disposal, such as credit cards and buy-now-pay-later apps, can encourage excessive spending.
Lifestyle creep. As your income rises, you may feel tempted to upgrade your life: new gadgets, fancier clothes, and maybe a luxury sedan. The extra spending comes at the expense of savings and could lead to future debt problems.
Deep-seated beliefs. People many form unconscious scripts about money based on their early-life experiences or messages learned from their family. An example is “money leads to higher status,” which unsurprisingly can fuel frivolous spending.
Compulsive spending. Someone struggling with compulsive buying disorder will find it extremely difficult to resist the urge to spend money.
Strategies for stopping bad spending habits
When your spending habits put your financial stability at risk, you need to make changes fast. Below are some tips and strategies that can help you get on the right track.
Identify your triggers
Pay attention to when and why you spend impulsively. Is it when you’re stressed or anxious? Or is it when you’re bored and mindlessly scrolling online? How about when you’re in a grumpy mood?
Be conscious of the time and place when you feel the urge to spend and note how you were feeling at the time the time. Recognizing the emotional and situational triggers will help you create an effective plan to replace them with healthier habits.
Create and budget (and stick to it)
One of the most practical ways to curb poor spending habits is to create and follow a budget. This tried and tested financial planning tool can help you ensure you’re spending your money wisely, including:
- Paying debts on time.
- Covering your essential needs, such as groceries, utilities, and rent.
- Setting funds aside for long-term goals, such as a home purchase or retirement.
- Having an adequate emergency fund.
Start by calculating your monthly income. Then, estimate your monthly expenses, dividing them into categories such as rent, insurance, groceries, and entertainment. Subtract your total expense from your income to see what you have left.
The next step is to review your monthly costs and determine if you can adjust them to save money and avoid poor spending decisions. For example, you can cut back on fast food, delivered meals, and to-go coffees, prioritizing essential groceries and the occasional treat. Rinse and repeat until you end up with a budget that suits your lifestyle without breaking the bank.
Track your spending
If you’re not a fan of budgeting, track your spending instead. Knowing where each dollar goes can help you uncover areas for improvement.
Monitoring spending is easy if you use online banking or a budgeting app—you can quickly review every purchase made using your debit or credit card. Some apps even warn you when you’re overspending in specific categories.
Commit to this process for at least a few months. Over time, you’ll uncover routines that are costing you a bundle, such as buying a pricey lunch every day, going for multiple coffee runs, or running up an expensive bar tab every weekend. The bad habits that have been hiding right under your nose will become fully transparent.
Delay nonessential purchases
If you’re prone to impulse shopping, intentionally delaying purchases can help you stop the habit. Try waiting 24-48 hours before making a nonessential purchase, especially if you regularly shop online.
The urge to buy is strongest at inception, so by postponing your purchase, there’s a good chance the motivation will fade. After one or two days, you’ll realize that you don’t really need or want the item.
Avoid taking credit cards everywhere
The saying “out of sight, out of mind” can be helpful in the context of compulsive spending. Apply this wisdom by leaving your credit cards at home when you go out, especially if you’re heading to a shopping center. Stick with cash, a debit card, or a prepaid card instead.
Without a credit card on hand, you’re more likely to spend less and avoid racking up unnecessary debt. Your spending will be limited by the amount of cash you have in your pocket or the balance in your chequing account.
Boost your financial literacy
Acquiring the proper knowledge can help you break bad spending habits for good. When you understand how money works, you’re more likely to make informed, confident, and positive financial decisions. Learning how credit card interest quickly adds up, how credit scores are calculated, and how to debt repayment strategies work can be eye-opening and motivate you to spend smarter.
Financial literacy takes the guesswork out of proper money management—and you don’t need a degree in accounting or economics to acquire it. It can be as simple as reading personal finance blogs, attending free workshops, or hiring a money coach.
Refuse credit limit increases
Most people will gleefully welcome a credit limit increase. But if you’re looking to kick you bad spending habits to the curb, it’s not something to celebrate. While it’s tempting to say “yes” to a higher borrowing limit, more credit often leads to more spending.
Carefully consider if access to more credit is something you need right now. If you’re working hard to control your spending, it’s better to stick with a lower limit.
Use cash whenever you can (or at least a prepaid card)
Paying with cash forces you to be more conscious of your spending. You literally see the money leaving your hand and whisked away in a cash register—it’s gone for good.
Conversely, paying with a debit or credit card is less transparent; you never see the money exchange hands. Unless you actively monitor your chequing account or credit card balance daily, you won’t fully grasp the extent of your spending habits.
If you hate handling cash, consider using a prepaid debit card instead. With a prepaid card, you can only spend the money you load into it, a nifty feature that naturally limits how much you can splurge.
Find someone to keep you accountable
Share your spending goals with a trusted friend, family member, or advisor. Having someone check in on your progress and cheer you on can help you stay motivated, consistent, and feel supported.
Automate savings and bill payments
Set up your household bills as pre-authorized debits to schedule recurring payments. With money going toward these crucial payments, you’re less likely to spend it elsewhere. Do the same thing with your savings account to grow your wealth while keeping your spending in check.
Try a no-spend challenge
Commit to a period of time where you abstain from spending money, whether a week, a month, or more. This strategy is known as a no-spend challenge, and it can be an effective way to reset poor spending habits.
Of course, essential purchases like food, utilities, and insurance are exempt—you can keep paying for these as needed. But everything else—movies, restaurants, coffee, sporting events—is off-limits.
Be a financially-savvy shopper
Sometimes, it’s not how much you shop but how and when you do so. Being mindful of your purchases can help you save money while ensuring you get the best value for your money. Use coupons, wait for sales, compare prices, and shop with a list to prevent overspending.
Make shopping harder on purpose
Find ways to make shopping a little bit inconvenient. For example, remove your saved credit card information from websites where you frequently make purchases. You can also unsubscribe from email lists from your favorite retailers; that way, you won’t be bombarded by enticing sales when you open your inbox.
The bottom line on breaking bad spending habits
It’s entirely possible to break free from bad spending habits—but only with the right plan in place. To improve your chances of success, pinpoint the root cause of your specific challenges and focus on solutions that target them directly. Regardless of what’s fueling your excessive spending, positive change begins with awareness and honesty about your situation.
However, there’s one hurdle that may hold you back from conquering your poor spending habits: debt. When you’re constantly juggling credit card payments, interest charges, and calls from collection agencies, building a better spending routine can be challenging and frustrating.
If debt is standing in your way to get your finances in order, Book a free consultation with a Licensed Insolvency Trustee (LIT) at David Sklar & Associates. We can review your financial situation and help you find the most effective path to lasting debt relief. With your debt out of the way, you can focus on making your positive spending habits stick for good.
