Do you always notice that you spend more than you earn? Expenses everywhere, to the point your earning seems too small to cater for your personal needs. You check your transaction statements and it’s full of debits and just a few credits.
I used to see more expenses in my transaction statements than income. To make it worse, my bank app writes expenses with a minus sign and red colour text. That way when I see more reds, I know what it means easily.
Thankfully, things began to change when I started my book business. After making a one-time payment for the books and the logistics, I saw more income transactions as I sold the books. This is what we call residual income as you can see in this post.
Naturally, most people have more outgoing payment transactions (expenses) than incomes but there are ways you can make your earnings supersede your expenses, which I will show you in this post.
Before I show you the sure ways to comfortably earn more than you are spending, you need to know some of the reasons why we naturally spend more than we earn. We will also take a brief look at the psychology behind why it is easier to spend money than to earn it.
Reasons Why We Spend More Than We Earn
It is easier to spend money than earn it. Unlike working hard to earn money, spending money requires no significant effort.
Spending money feels good and gratifying because all you need to do is pull out the bill or make a money transfer, and in return, you get the product or service you want.
On the other hand, making money might require you to sometimes wake up very early in the morning to prepare for work. Countless other times, you have to spend sleepless nights trying to tie loose ends. At the end of the day, your paying client or employee may default or delay the payment due to certain factors beyond your control.
The “psychology of spending”[1]New Psychology of Spending | Rivermark Community Credit Union also posits that people may either spend to fill perceived voids in their lives, to please others, or to feel better than others. Thus, it becomes clearer that spending money is a sweeter experience than making money.
We feel very satisfied when we receive money. Part of that satisfaction comes from the fact that one may fantasize what one wants to use the money to buy. Below are some other reasons why we naturally spend more than we earn.
1. Human wants are insatiable
There will always be something new you need to acquire no matter how much you already have. This concept of insatiable human wants is natural and is one of the reasons we keep spending more than we earn.
That is what Regener Gagnier described in his book “The Insatiability of Human Wants”[2]Gagnier, R. 2000. The Insatiability of Human Wants: Economics and Aesthetics in Market /Line Break Society, University of Chicago Press, p. 352, that human wants are insatiable due to some unforeseen contingencies in the environment and society in general.
The solution to this is what Lionel Robbins, the famous pioneer British economist, described as “economics”, “the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”[3]Robbins, L. (1932). An Essay on the Nature and Significance of Economic Science, P. 15.
In other words, there are ‘ends’ and ‘scarce means to the ends’ but the means have different/alternative uses. You just have to chose which end is more important and which is not. This is where the concept of wants and needs arose from, differentiating mere wants from essential needs.
2. Money is naturally hard to get
It is the inherent nature of money to be scarce. What do you expect from the only commodity with which other commodities can be exchanged?
Trade by barter met its end point when it gradually became difficult to compare the value of two or more commodities. Now that money has come to be, everyone frantically searches for it making it even more difficult to get.
3. Technological enhancements
Thankfully, the bank system was introduced to save money until needed. What would have happened if you had to go to the bank to make a withdrawal each time you want to make a purchase?
Today, technology has made it very easy to spend money. You can purchase products worth millions within few seconds without even touching a cash note. This makes it easier to spend money than it used to be.
The “problem of paying” has not been eliminated, and this is what Prof. Drazen Prelec talked about when he said “Credit cards are insidious because they disconnect the pleasure of buying from the pain of paying”[4]The Psychology of Spending – MIT Spectrum. Thus, by eliminating the pain of buying, credit cards and digital payments makes it easier to spend more in recent times.
4. Lack of self-control
Impulsive buying is a result of a lack of self-control. This is when you buy things you did not plan for simply because they appeal to your eyes. Lack of self-control makes one unable to resist the urge to buy.
To avoid impusive buying, one need to be more decisive and disciplined on one’s spendings. Categorize your needs and wants in an order of preference and satisfy the most pressing ones first.
5. Lack of a futuristic mindset
Someone with a futuristic mindset focuses more on the future than the present. Spending money on everything we want at the moment can give us a sense of immediate pleasure but that can lead to hardship.
As against someone with a myopic mindset, one with a futuristic mindset agrees with the concept of delayed gratification where immediate rewards can be postponed to give birth to even bigger rewards.
Instead of spending your little money on unimportant things, you can grow it through saving and investment until you have enough money to buy anything you want or need without it significantly affecting your pocket.
How to Earn More Than You Spend
Having seen some reasons why we spend more, we will now look at some ways to earn more and spend less.
1. Start a trade
If you are looking for a way to begin to earn more than you are spending, starting a trade does the magic. Since I started my book business, I started recording more income payments than expenses.
When you look through your bank statement, instead of one income and fifteen expenditures, the reverse would be the case after you start a trade.
To start a trade, you need to identify a need or a distribution gap, that is, something people need but is not being made available to them. This will not be so hard to do because there are a lot of things people need and wants on a daily basis.
You can sell a product, render a service, or be a middle man between consumers and the first seller. The possibilities of making a trade are endless but it can make you start earning more than you are spending.
2. Commit to financial investments
Financial investment refers to the act of putting your money into an established business, stock, or bond, so that it can generate profits for you. It is a great way to help you earn more than you spend.
I have discussed some ways you can invest to earn passive income in this post here.
3. Save, but wisely
As much as saving is an important way to deal with financial emergencies, it still has to be done wisely. When you are committed to saving regularly, it can increase your bank inflow and decrease outflow significantly.
Many people save with the mind of raising millions of money in the process. But while it is a good idea to save up money for a project or task, having too big target can frustrate the entire saving process.
Besides, saving money without any investment plans in mind will make your money lose value over time as inflation rates rise. Also not to mention that some unforeseen contingencies can make you use your entire saving.
A better way of making millions of money is by investing it. You can invest in a more stable currency than your local currency, or in stock whose value can also increase in time and bring you more profits.
4. Adopt a budget
Once you are able to control your spending, you will be able to close up the gap between your spendings and your earning. To do so, you can adopt a monthly, weekly, or daily budget depending on how your major income comes, and stick to it as much as you can.
A budget also helps you keep track of your expenditure and show you areas that may need a higher allocation as well as areas where you need to cut your spending.
There are digital apps that can help you easily make and keep track of a budget. I personally use iSaveMoney app. You can also get it from your app store.
Unhealthy habits that make you spend more money than you earn
It is easier to spend money and harder to earn money, but some of these unhealthy spending habits make things even worse.
1. Spending without a plan
If you don’t have a monthly budget plan, your money will disappear without a trace. You won’t know where your money went because you never had a plan in the first place.
A budget is one of the best ways to implement a spending plan. A budget tells you how you want your money to go, to what purpose, and how much of it. Without a budget, you might overspend your money without knowing. Even if you are earning a significantly adequate income, poor financial planning can make you run into serious debts.
2. Paying for convenience
Paying for convenience refers to that additional fee you pay for a product, item, or service, that was not part of its true cost. For example, when you pay an additional fee for an item because you want to pay via credit card.
The additional expenses may not look huge for individual transactions but they can add up cumulatively when you frequently pay for convenience.
3. Spending without keeping track
It is easy to lose track of your expenditures if you don’t account for them. That’s what happens when you keep spending without accounting for them at the end of the day.
You can track your spending easily by documenting them on your books at the end of the day. When you know how much you took with you, and how much you brought back, you can account for your expenses by documenting for everything you paid for during the day.
Tracking your expenses can help you manage your funds particularly when you are living on critical funds. Thankfully, mobile apps have been designed to help you track your spending easily.
Making and adopting a budget can also help you plan and your track expenses ahead of time.
4. Impulse buying
Everyone knows the problems associated with impulse buying until they are asked to stop it. Yearly, Americans spend over $3,300 on impulse purchases. These are expenditures they didn’t plan for, things they really do not need but just felt like buying them anyways.
One simple way to stop yourself from impulse buying is by asking yourself this question each time you are presented with the thought of buying something, “Do I really need it”. Whatever is not essential to your livelihood, or not required by your business, or whatever might place an unwarranted strain on your finances is not needed until proven otherwise[5]Americans Report 51% Increase in Monthly Impulse Spending, According to Year-Over-Year Survey Commissioned by Slickdeals – PRNewswire.com.
Below is an algorithm that would guide you in your purchases.
5. Emotional spending
Do you spend just to feel happy? This is something called emotional spending, where the individual purchases items just to be able to forget their problems. If you are such a person, you can reach out for help on how to stop doing so, because it can drain you of your hard-earned money within a short time.
Furthermore, when you later realize that the last purchase did not take away your problems, you are forced to keep spending and spending, until you have totally depleted your funds. Instead of spending emotionally, focus on your goals and how to rise above the problems. Avoid coating your problems with something transient, they will resurface before long.
Final words
It’s easier to spend money than make it. The reasons are clear enough. We work so hard for the money only to spend it easily at the end of the day.
Overspending can be a big problem for your finances. To overcome this problem, a good knowledge of the innate causes of overspending will be important.
I also showed you some major ways to increase your income streams over your expenses. You also want to cut down your spending so they don’t overwhelm you financially.
If you or someone you know is having issues controlling their spending, they might need medical or psychiatric evaluation as overspending or impulsive buying can be an addiction. Mental illnesses like mania and bipolar disorder have been linked to such behaviours.
