Spending their money with blue credit card

Why do people spend their money rather than save it?

I have always wondered why is it that some people feel the need to spend their money as soon as it hits their bank account whilst others prefer to save or invest their income.

According to a survey, one in six Britons admits to having no savings at all. Whilst one in four would see their savings wiped out within a month if they lost their job. Those statistics are frightening.

Losing your job does not just affect people on low incomes. According to the same survey two out of five people earning more than £100,000 said they would run out of money within five months. That is slightly longer as these people should have some savings and investments that they can use. Ideally, though they should be able to survive longer than that given the size of their wages.

So what causes some people to spend their money as soon as they get their hands on it rather than save it?

Not making enough money

Saving money is going to be almost impossible if you are not making much money. If you are barely making enough money to pay for essentials then it is easy to see where the money needs to go. Providing food, clothing, and shelter to yourself and your family today is far more important than saving for tomorrow.

Making extra money by taking on a second job or a side hustle can help. Every penny counts if you are struggling financially. Being frugal and cutting costs can help. If you living the breadline you will already be being extra careful in how you spend your money to ensure you make it go as far as possible. This leaves little room to save money.

It is only when you can afford to buy all the essentials that you need that you can think about saving money. Once you reach this tipping point you can build an emergency fund and start to spend some money on luxuries.

Social Media encourages you to spend

Around 50% of Britons said they felt pressure from social media sites such as Facebook to spend their money. Lots of people see their friends and celebrities buying the latest gadgets, going off on fancy holidays or buying trendy clothes and feel the need to do the same.

These days people are not just trying to keep up with the Joneses but some people are trying to keep up with the Kardashians whilst earning a fraction of their income. Spending large sums of money without having sufficient income to finance it will only end up with people in debt

Another survey in the US found those people that spent more time on Facebook tended to have more debt and lower credit scores than those who did not use Facebook as much.

If you want to stop spending and start saving then reduce the amount of time you spend on social media. It has also been suggested that talking about money helps. Discussing money with your partner, family or friends encourages you to reduce your spending and improve your money saving habits.  

No patience – want it now pay later

Many people want things now. They want instant gratification and are not prepared to wait. This leads them to spend their money or to borrow money usually on a credit card to pay for the latest gadget or must have item.

Delaying their purchase by even a couple of months would allow them to save some money that they could put towards the purchase. Quite possibly in a couple of months the item they needed so badly today will be lying in a drawer if it is no longer fashionable or the current fad.

Lack of self control

Many people spend their money on impulse buys. They later regret buying stuff. It is common for people to wish they had thought about whether they could afford something or really needed it but by then it is too late. 

More often than not it is better to sleep on a decision. This gives your brain time to think about whether you really need that new iPhone or whether you would be better to use that money to pay off a debt or save up so you can buy the next generation iPhone when it comes out next year.

Parental habits

Your parents have a huge influence on you. If they were well off and were constantly buying the latest fashions and newest fads then this appears normal to you. As a result, you are highly likely to copy their spending habits.

Similarly, if your parents were frugal and careful with their money the chances are this will have rubbed off on you. This probably means that you too are careful with how you spend your money.

Financial education

Despite money being so important in our society, it is not something that is taught at school. We learn how to count at school. We learn how to calculate percentages. We learn to read. Putting these all together we should be able to understand how financial agreements such as loans and credit cards work.

Unfortunately, many people seem to skip the financial sections of agreements. Instead, they are much more interested in getting their hands on the keys to their new car or house. This means they end up paying more money than they should have they shopped around or negotiated a better deal.

There has been an increase in promoting the importance of financial education in recent years. In the UK this has been championed by Martin Lewis of Moneysavingexpert fame. In my mind, teaching children about personal finances is something that needs to be encouraged. Understanding your money habits should allow people to make better-informed decisions about how the save or spend their money.

Shopping Addiction

Some people are addicted to spending their money on shopping. These people are compulsive shoppers. They buy things that they do not need. These people are also unlikely to be able to afford these purchases. Their addiction is similar to that of other addicts who need their fix.

Shopping addicts will always look to spend their money as it is the easiest way of dealing with their addiction. Unfortunately, the constant spending unless they are earning significant sums is likely to lead to them drowning in debts.

You Only Live Once

Many people do not save as they want to enjoy the moment. They would rather spend their money going to fancy restaurants, going on exotic holidays and driving sports cars. These people live for the moment and the last thing on their minds is saving money for retirement.

Lifestyle creep

When you are younger saving for retirement and achieving financial independence seems so far away. You expect your salary to increase significantly as you work your way up the ladder. However, rather than saving these increase people spend their money on new clothes or other items that they can now afford. 

Lifestyle creep happens gradually as its name suggests. Many people are not even aware of how their spending habits have changed. Items that were once luxuries have become necessities. Whilst people may increase their spending lifestyle creep means these savings are not as much as you would expect.

Summary

There are lots of reasons why people spend more than they save. These include not making enough money, the influence of social media, shopping addiction, lifestyle creep and spending because you only live once.

Overall you need to spend some money now as you need to eat and enjoy yourself. However, there needs to be some compromise balancing saving for the future with living for today.