Why do people spend what they don't have?

Why do people spend money they don't have? To feel good, to keep up, and because credit makes it easy, to name a few reasons. Learn more here.

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Almost everything in life costs money, which means spending is just a part of daily living. You wake up and make yourself coffee that you bought at the grocery store earlier this week. You head to work in the car you bought or use the public transportation pass you paid for.

You spend some time playing Candy Crush on the smartphone you’re paying for each month. Your whole day is full of things that cost money. But what happens when all of the things you’re spending money on cost more than what you actually make?

Spending is normal, but spending more than you make is when it becomes a problem (and it’s a pretty common problem, at that). More often than not, it leads to accruing at least some debt and saving too little for a rainy day. But why do people do it? Here are some of the reasons why people spend more than they should, and a few ways you may be able to get your spending in check:

To Feel Good

Whether they're going out every night or buying a lot of things, some people like to spend money simply because it makes them happy. Because when doesn't a new handbag or happy hour with friends make a bad day better?

Believe it or not, retail therapy is actually a psychologically verified thing—shopping allows people to visualize themselves in a "better" life, where they're dressed in nice clothes or surrounded by nice things. Buying makes these visualizations a reality.

To some extent, retail therapy is completely natural and can even be healthy. When it means overspending, though, you may want to rethink your habits. If you find yourself recklessly spending when you're upset or sad, find a way to get to the bottom of your feelings that doesn't involve purchasing shiny new things.

To Keep Up

Societal factors are another extremely common reason people spend more money than they make. Let's face it—we live in a materialistic society. Things like cars, clothes, smartphones, handbags, and so much more are all status symbols, which means building up your status often means spending money on those things.

While it's only natural to want to fit in, it's also important to understand that overspending now can only hurt you in the future. Plus, your current financial situation isn't permanent. As you progress through a career and begin to save money and invest, you'll likely be making a lot more in a few years than you are now.

Because Credit Makes It Easy

Building credit is important for so many reasons, and credit cards are a vital part of that. And it's not that credit cards are bad—they often offer a variety of benefits and provide a nice financial cushion in an emergency. However, credit cards are also the epitome of exactly the problem we're talking about—they allow people to spend more money than they actually have.

Plus, several studies have shown that people think less about swiping a card than they do about spending cash, which means it's a bit easier to swipe first and think about it later. If you're addicted to your credit card (as so many people are), consider taking a credit hiatus for awhile.

Freeze your cards. No, seriously, put them in the freezer, and don't take them out unless it's a serious emergency. Take time getting into the habit of spending only what's in your bank account.

Because Ignorance Is Bliss

Some people spend more money than they have, not because of a need to purchase a lot of things for happiness or lifestyle, but because they simply prefer not to keep track of what's going on in their bank accounts.

If you aren't sure exactly how much money you have, it can be easier to buy things here and there and spend more than you should be. This is when creating a budget becomes such an important step—it'll help you take control of your financial situation.

On Creating Your Budget

To create your budget, first do some simple math to find out how much you make per month, then lay out all of your permanent expenses. These will be things like rent, utilities, cable and Internet bills, medicine, and anything else you pay for every month.

Deduct those from your income and figure out how much you have left, then allocate the remainder to things like food and other necessities, entertainment, and shopping.

On Sticking to Your Budget

Creating a budget doesn't mean you have to stop spending money on frivolous things that make you feel great. In fact, the answer to any of these issues isn't to stop spending money altogether, it's just to stop overspending.

When you create your budget, give yourself a spending allowance each month that you can use on that new pair of sunglasses when you're having a bad day or a night out when you need to let off some steam.

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This article was written by Rent.com Contributor from Forbes and was licensed as an article reprint from June 26, 2015. Article copyright 2015 by Forbes.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
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