Why We Spend Too Much Money

If you spend more than you want to – you are not alone. But it’s not your fault. You have been taught to think about money the wrong way – which results in spending too much. But we came up with a simple method that will help you spend less and feel good about your money decisions.

We are Trained to Spend Money

The main reason we spend too much money is because we have been taught to look at all the wrong numbers. Our brains like to simplify the math for us (I mean… who likes doing math, right?). So if you make $50,000 per year, then that os the number your brain uses for reference.

Let’s say your refrigerator is getting old and ugly. You decide to look for a new one. Why get a new one when yours is still working? Because it is old and ugly – and doesn’t have the cool new features, such as text message reminders to get milk (just kidding – but not really). Well, you make $50,000 per year so you should be able to get a new refrigerator, right?

When you get to the store, you look at various refrigerators and their features and prices. Fridge A is only $1,000 while fridge B is $1,800. Well, you make $50,000 per year, so you should be able to afford $1,800. This is a no-brainer.

Stop right there – Some of you are already better than this. You know enough to say, “I already break this number down smaller… I only make about $4,000 per month.” Great! Now let’s look at again. Fridge A is $1,000 and Fridge B is $1,800. But you make $4,000 per month and this fridge is likely to last at least 10 years, so maybe it is worth it. So not only do you buy a refrigerator when yours is not broken, but you bought the more expensive one. Or, maybe you bought the one for $1,000 and feel really good about your decision. But was it a good decision?

Small Purchases are Even Worse

Okay. Let’s break it down to smaller purchases. The reason small purchases are worse is simply because we make so many more small purchases. And we can justify a few more dollars for each of them. But this adds up to thousands per year.

You want to purchase a cellphone case. You can get a case for $10, $25, or $60. Given that you make $50,000 per year about $4,000 per month, then does it really matter if you pay $60 and get the case you really want? You don’t have to do a lot of math to figure out what a small percentage of your income that is.

Next, let’s say you want to buy your lunch at work instead of packing. It costs about $2 to pack your lunch and $8 to buy it. For $6 more you might as well just buy your lunch. I mean what is $4 out of $4,000 in your monthly income anyway?

Finally, assume you are negotiating when buying a car. At the end of the day, so what if you don’t get the absolute best price or the absolute best interest rate? All that haggling and negotiating will only result in about $20 per month savings at best. Out of $4,000 each month, it really isn’t a big deal.

You Don’t Make that Much Money!

The problem with this line of thinking is that you don’t really make that much money. Oh, you earn that much money. But you don’t really have that much money to spend. Let’s break it down:

Monthly Income


Federal taxes


State taxes




Car payment


Car insurance


Student loans






$ 0
Available Spending Money

How to Spend Less

The key to spending less is to not think about how much you make each month, but to think about how much you have available to spend each month. Let’s continue with our example. Now, each time you make  a decision (“Should I go ahead and buy that new fridge?”, “Should I get the nicer fridge?”, “Can I just buy my lunch instead of packing?”, “Is it okay to get the $60 cell phone case?”) you do so relative to your spending money – $150 per month.

When you make your spending decisions based on the small dollars that are actually available to you, you will make better spending decisions. You won’t overspend because you will be more cautious with your money.

For individual purchases, such as a $60 cellphone case, you now see that it will cost you close to half your available monthly spending money! By comparing every small purchase to your $150 of spending money, you will only be willing to spend it on those things that are really important to you.

Plus, think about monthly expenses. For example, negotiating a little more on your car might have saved you just $20 per month. Compared to your $4,000 so what? But compared to your $150 in spending money, that would have been a 13% increase in spending money – from $150 to $170! Buying lunch out just 4 times per month will cost an extra $20 compared to packing. That could bump you up to $190, and so on as you start making smart money decisions.

The point is that as you go through your line item of expenses, you can see where making small adjustments to spend smarter will result in large savings each month. By prioritizing your spending in this way you are sure to always make the most of your money and are less likely to regret your purchases later.

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Bill Pratt

Bill is an Assistant Professor of Business at Piedmont Virginia Community College. He speaks on topics related to personal finance on college campuses across the country and is the author of multiple books on personal finance. He left the financial industry to focus on helping people become personally and financially successful. He lives in Charlottesville, VA with his wife and their three pets.

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