These days, with gas prices and food costs (yes, we’re talking about eggs) on the rise, it feels more important than ever to get your finances in check. But, do you feel like you keep overspending, no matter how many times you tell yourself you’re going to stick to your budget this time?
Katie Gatti — the blogger and podcaster behind @moneywithkatie who has over 160K Instagram followers — explains how friends, family and the media impact our spending habits and the interesting ways that we all rationalize and justify purchases to ourselves. While our relationship with money will always be complicated and is individual—as the age-old adage goes, knowledge is power. Especially when that knowledge is understanding yourself better. Here, Katie shares three ways you can better understand what may be triggering your overspending, help you change your mindset about money, and finally start saving.
1. Contextualize Your Spending
How often have you pined over something you’ve seen on a celebrity? Whether it’s a bag, a bracelet, shoes or anything else, we’ve all done it! Maybe you’ve even splurged and bought something you couldn’t really afford.
Here’s how to never do that again… contextualize your spending!
For Katie, that item was a Cartier bracelet — worth a whopping $6900! — that she saw on a celebrity reportedly worth over a billion dollars.
That means the bracelet is worth roughly .0007% of the celebrity’s estimated net worth.
Let’s say your net worth is $121,700 — the median for Americans, as of September 2022. The equivalent .0007% is just $0.85.
“So yeah, [the billionaire celebrity] owning a $7,000 bracelet is the same as a regular person having a bracelet that costs less than a dollar,” Katie explains.
Once you put these purchases in context, Katie says you’ll realize that celebs and influencers are on a totally different playing field. Hopefully next time, this will stop you from mindlessly splurging on the latest designer “It” item.
2. Annualize Your Spending
It can be really easy to justify and rationalize spending that feels pretty “normal” to us, such as going out to dinner or getting a manicure (why not do your nails at home?), because these costs seem harmless and don’t appear to put you in debt. But, is it really the best use of your money?
These kinds of costs can easily creep up without us realizing how much we’re spending! Maybe you even justify it by saying you got a raise. After all, you’re not going into debt, so it must be fine, right? Not quite...
That’s why Katie says to annualize your spending—to think of these costs annually, especially how they pertain to your annual income.
For example, if your salary is $75,000 per year and you’re spending $800 per month on restaurants, the amount may feel pretty reasonable—after all, $800 seems like nothing compared to $75,000. But 12 months of $800 per month?
“When we annualize this, we see that this is about 13% of our gross income. 13% is a pretty significant chunk,” she highlights.
Katie adds that if you were to invest half of that, you could reach financial goals (such as having these three retirement income sources).
By thinking about your money in this way, Katie says it can help you identify problem areas where you’re overspending or to help you see if you’re succumbing to lifestyle creep.
3. Reset Your Reward System
Last but not least, Katie recommends resetting your reward system.
If you live in the 21st century, specifically in the United States, chances are good that you've been flooded with endless messaging and marketing that entice you to buy things as a way to treat yourself.
“But if we’re treating ourselves all the time, it’s not really a treat anymore,” she says.
That’s why Katie recommends taking an intentional 30 or 60-day “fast” from unnecessary purchases in order to break those “dopamine reward system feedback loops.”
“It’s intentionally temporary. It’s not supposed to last forever. It’s really just to reset your consumption habits back to baseline and put you in situations where you have to be creative and resourceful,” Katie says.
Katie adds that “unnecessary spending” — whether it’s shopping for clothes or getting coffee from your local cafe — differs from person to person.
When you do resume normal spending, Katie says you are more likely to enjoy the experience because it may not feel as mundane or routine. In other words: you’re no longer impulsively overspending!