Top 10 Reasons People Spend More Than They Earn

Rule #1 of financial freedom is spending less than you earn. If you can’t do that, you’ll never be financially successful no matter how hard you work, how many hours you put in, how many promotions you receive, or how much money you make.

It’s a simple rule, and most would consider it common sense. But, the U.S. has a negative savings rate, meaning this common sense rule may not be so common place. I recently saw a statistic that claimed that about 43% of American families spend more than they earn each year.

It’s helpful to understand why people over spend, and be aware of any that might apply to you.

10.Keeping up with the Jones’ – Psychology plays a big role in our spending habits. We want to feel as successful or more successful than those around us. We spend a lot of money to keep up that image. The reality is, the neighbors probably can’t afford that new boat either.

9. Avoiding the truth – It’s easy to overspend when you don’t keep tabs on how much you have. People will go for years unaware of their true financial situation because they’re afraid to look at what kind of mess they are in. It’s easier (temporarily) to just avoid it. They’ll pay their minimums and add new credit cards as necessary ignoring the growing debt total.

8. Counting the chickens before they hatch – In National Lampoon’s Christmas Vacation, Clark Griswold made a large down-payment on his swimming pool expecting that his upcoming Christmas bonus would cover it. Instead, he was enrolled in a Jelly of the Month club. We are often similarly optimistic about incoming money. It’s spent before it’s received, and it’s often not as much as was expected nor received when expected.

7. Plastic doesn’t feel like real money – It’s common to spend more when using credit cards than cash. The experience of hading over a card that you get back is just not the same as handing over some cold hard cash and seeing it disappear.

6. Immediate gratification – It’s all around us. We’re bombarded with the immediate gratification mentality. “Instant pain relief”, “fast food”, “on demand video”, and the big financial one, “buy now, pay later”. We’re too used to getting what we want now even if we don’t know how we’ll pay later.

5. Lifestyle maintenance – Most people increase their expenses as quickly as they increase their income. The same cannot be said for decreases in income. Once we become accustomed to a certain lifestyle, it’s pretty difficult to cut back, even if our financial situation changes for the worse.

4. Poor as a child – Whether they’re trying to make up for their deprivation as a child, a fear of money being taken away that isn’t spent immediately, or a lack of financial understanding, being poor as a child is an often used excuse of overspending adults.

3. Sense of power – Spending money actually makes some people feel powerful. The more they spend, the more powerful they feel, and the only way to get that rush is to spend more money.

2. Prove self worth – Buying that fancy new car proves you are somebody, right? For some people spending makes them feel like they are worth something to the world.

1. Can’t say no – Some people feel like a failure when they can’t meet the wants of others. Whether it’s new toys for the kids, new outfit for the spouse, or a night out with the friends, some people just can’t say no, even when they can’t afford to say yes.

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36 Responses to “Top 10 Reasons People Spend More Than They Earn”

  1. The Dividend Guy on January 28th, 2008 6:48 pm

    It is interesting that the last couple are really just excuses – as you say, it is important for people to recognize these excuses and deal with them not as hindrances but as motivations to move forward.

  2. moneygardener on January 28th, 2008 8:09 pm

    Very good post!

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  4. Sophie on February 4th, 2008 5:43 am

    So true!!!
    I live with POOR AS A CHILD, and she finds every excuse to justify her spending, or denies spending anything at all…
    That combined with the CAN’T SAY NO, and you see what financial mess we are in.

  5. personal finance articles uk | plonkee money on February 4th, 2008 1:55 pm

    […] Top 10 reasons people spend more than they earn @ Accumulating Money – by the way, none of them are good reasons […]

  6. Harrison on February 7th, 2008 6:54 pm

    I quite agree with you that Rule #1 of financial freedom is spending less than you earn. So if we want to spend more, for example, buy a better house for our family, then you have to increase your income since you must spend less than you earn. This is the theory that I always think.

  7. Gus on February 9th, 2008 10:17 am

    I am in a profession that makes a fair bit of money, and in the process of dating someone in the same profession (115k/yr each). What I have noticed that people who “expect” to make a lot of money often choose to spend it cause “they can.” I see this everywhere in my profession (sports cars, expensive tastes).

    Another couple in our same boat think that, on 230k/yr, they can afford a 750k house. My s/o and myself took the same salary and figured we could afford a 450k house.

    The difference? The mindset of the two couples and nothing else.

  8. The Marketing Coach on February 13th, 2008 9:22 pm

    The real reason is that people have low self esteem and spend to make themselves feel good, or to solve a feeling that something is lacking in their life.

  9. sadpanda on February 15th, 2008 3:11 am

    Well, sometimes buying that more expensive car or outfit CAN help you get new contracts, a promotion, better wage, …

  10. shawn sum on February 15th, 2008 6:29 am

    Nowadays people dont practice saving… very sad

  11. Sarah on February 15th, 2008 7:07 pm

    Another reason is menal health issues – spending sprees are a classic symptom of the manic phase of manic depression. This is an aspect of bipolar that is incredidibly common but rarely talked about. Doesn’t help when POTUS tells people there duty as citizens is to “go shoping”.

  12. Saravana Kumar on February 18th, 2008 4:47 am

    All the above reasons are 100% true.

  13. monevator on February 20th, 2008 3:15 am

    One thing you missed: People can spend more than they earn because they genuinely don’t know what they earn, or what they spend. A lot of people don’t even think about doing a budget until it’s already too late.

  14. John on February 22nd, 2008 11:55 am

    Very interesting post. Perception is the key to riches or failure its your own direction.

    But you don’t have to Spend like your rich just to make other people perceive that you are and if the only reason why you are trying to get rich is to prove something to someone else, you are already headed down the wrong path anyways.

  15. Debt Reduction on May 21st, 2008 1:33 pm

    This is a good post whereby people who are having issues with debt can read and understand or see themselves. Identifying your spending reasons can be a way of getting to grips with your spending problems. I think it is true that people just ignore the reality of how much they can afford to spend and don’t save even close to what they should in order to buy the things that they need.

  16. Personal Money Tips on June 2nd, 2008 1:46 pm

    Short and sweet. I like the list.

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  19. Beth on June 26th, 2008 9:11 am

    Great post. I think some people also don’t realize that some purchases have future costs associated with them that aren’t necessarily factored in at the time of purchase. When buying a house, it has to be air conditioned, heated, furnished, taxes paid, etc. How many people ask for past home bills from the prior owner to get a sense of monthly costs? Buying a car requires regular, and sometimes unexpected, maintenance/repairs. Do many people factor in that maintenance on a certain car may be more frequent or more costly based on the type of car being purchased? Buying music can even add up when an MP3 player is purchased – I’m seeing this with my 13-yo nephew. It’s a shame that an education in budgeting and “real world” expenses aren’t mandatory in high school AND college. If young people were taught some of these issues when they are beginning their financial lives, maybe they can start off on the right foot with a bit of education. Hopefully posts like this one will be passed on to those who need it.

  20. richard custodian on June 26th, 2008 9:48 am

    this a flimflam article…yes you decribed ways we spend more than we make however, you forgot the biggest reason…lifes expenses and attempts to improve…

    schooling after grade 12
    improving physical imperfections (ie: my case 2000.00 for eye sergery)
    child having problems in public school system (they don’t work for everyone anyway)
    need of a vehicle because you move to a cheaper neigbourhood, and found it’s more expensive than the high rent in town
    buying a home on rent to own to discover maintenance is killing you…

    I can go on and on and on but, I believe you get the idea…
    now if you could come up with psyhological way to pay yourself first with a fixed income, before finishing the course to get bigger salary I thing you would help your casual reader and they will come back for more, or is there no profit in that…


    the life long learning and indebt because I forgot to get money management first…


  21. Financial Course Blog on September 1st, 2008 7:48 am

    This is a great post, the biggest reason IMHO for people to spend more than they earn is the credit card and the easiness it brings to spend much more than you can afford because you don’t feel the money.

    As one said most of the reasons are psychological and that’s true but I think also that a good education about money and financial matters lacks overall and not only in the US but in the whole world. The reasons you portrait here are true mostly for the US because in other countries it’s not the same case and not the same possibilities but still they are quite valid.


  22. Ayesha on December 16th, 2008 4:13 pm

    none of them are good reasons:(

  23. Bill M on December 19th, 2008 3:32 pm

    Hopefully after this financial crisis, the millennium generation will learn to save like our grand parents did.

  24. Wise Finish on February 14th, 2009 9:12 am

    Selfishness and greed!

  25. zyva on April 14th, 2009 4:05 am

    Not every people like to spend more than he earn. I think consumerism become bad habbit for certain person who poisoned by materialism mind, and his soul not strong enough for facing this attacks

  26. John on May 29th, 2009 7:40 pm

    I think moderation is important. While saving money is very important it is also important for people to spend money. If everyone just spent their income on their bills and nothing more, then lots of companies would go out of business and as a result people would lose their jobs. There really needs to be a balance.

  27. Robert on October 16th, 2009 9:51 am

    Spending money for stupid things is silly. You think how hard you work and then waste it like it’s nothing. People should follow these ten tips and save a bit more–it’ll pay off in the long run. Great post.

  28. Thomas Bailey on November 13th, 2009 10:51 pm

    There are TV ads that tell us in effect that to be happy, we need an expensive car, expensive clothing, and basically an expensive lifestyle. There are ads that play to our vanity.
    As for the cost of maintaining a car, I know full well I cannot afford it, thus, I do not plan to buy a car. A bike does the job just fine.

  29. alan on June 21st, 2010 1:33 pm

    the main reason is you do not need to pay money if you do not have. just file bankruptcy.

  30. Jack Vincent (The Way to Wealth) on March 30th, 2011 8:24 am

    This article is right on point. Most of our overspending is for the wrong reasons.

    What about when overspending is necessary? We’ve all gone through it. The major car repair you put on your credit card so you can get to work, or the mostly minor (and occasionally major) disasters that instantly drain any savings you’ve built up.

  31. David Sneen on July 16th, 2011 6:02 pm

    It is so easy to spend-and so difficult to save. I found myself nodding as I was reading your top 10 reasons to spend….and I can encapsulate your article with – “Spending is fun, …. more fun than saving!” Great work.

  32. David Sneen on July 23rd, 2011 9:51 pm

    These are compelling reasons to spend. Looking at your article, I can see how easy it is to get into trouble. Spending can be so hard to resist.

  33. your mom on November 3rd, 2011 7:47 am

    i like rule 9 the most

  34. your mom on November 4th, 2011 7:27 am

    number 1 is the most used where i come from

  35. j on February 5th, 2012 6:49 pm

    There are all of these neat toys out there. I thought about getting a mobile phone, but I really don’t need one and I really don’t feel like spending the extra money. I rather save my money for more important things…like starting a family.

  36. Ellen on June 25th, 2014 10:30 am

    Very good article. I wasn’t poor as a child, but having a single parent (due to my father dying), we had to cut corners. My mother made sure that we were clothed, fed and had a roof over our heads, but we did not have most things that every other family had. And when we did have things, a lot of times they were cheaper or off brand items. I have one brother and sister, and we had to share a lot of things. I think by being raised like I have become accustomed to not having so much. Sure, I have things that I never had as a kid, but it is in moderation. If I can’t afford something, or the added cost of owning it, I don’t buy it. If more people would simplify their lives, they would have less chaos, and be happier in many other ways. I am glad 30 or 40 years ago that we did not have the advanced technology that we have today. There is no way we could have afforded it, as well as the upkeep. I doubt that my mom would have tolerated all of her kids wanting a cell phone with unlimited minutes and all the perks. We would have been in the poor house for sure.

    I do remember that from my experience from being at a friend’s church, the two that come to mind are #1 and #10. We were always expected to have a similar image as other people to keep others from gossiping (how stupid is that?) #1 was the worst thing in church, because I was always told that you can’t disappoint God, so we were always expected to give, and it was not kept in confidence. Somehow, people would always find out how much I gave and I was criticized and ridiculed for it. That is probably the biggest reason why I don’t give a lot in charity, today.

    All the points above are great ones and important. People just need to learn to live within their means. A quote that someone shared with me once is “The More Things You Own, The More Things Own You.”

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