Overspending is spending more money than one can afford. It is a common problem when easy credit is available. The term overspending is also used for investment projects when payments exceed actual calculated cost. [1]
Overspending is spending more money than one can afford. It is a common problem when easy credit is available. The term overspending is also used for investment projects when payments exceed actual calculated cost. [1]
Some overspending is a form of addictive behaviour due to psychological dependence. [2] The sufferers spend in order to relieve other problems in their lives such anxiety or stress. Others may overspend to impress their associates, for example, by picking up the bill for a meal at a restaurant. [3] There are some who want to impress their neighbors and bring large packets, furniture frequently.
Sources of credit such as credit cards enable overspending by allowing consumers to spend beyond their income. Financial counselors advise indebted consumers to avoid buying goods on credit and even to cut up their credit cards. [4]
An analysis of consumer expenditure showed that 40% of US households overspent in 1990. [5] Other things being equal, educated people were more likely to overspend than the less-educated. [5]
In April 2008, consumer debt in the USA, excluding mortgages, reached the total of $2.56 trillion - over $8,000 per person. [4]
The factors which result in overspending include:
Savings may prevent overspending because they provide a reserve for unexpected contingencies such as medical expenses and loss of income due to illness. [5] Opening an recurring account in Bank when some fixed amount is taken out from the account and put in RD ( recurring account ). Lump sum amount is then paid back after completion of the fixed tenure.
Bankruptcy is a serious result of overspending. In 1991, 0.9% of US households were declared bankrupt. [5]
The Roman Emperors had little access to credit. The treasury was built up by prudent or miserly Emperors like Hadrian and Tiberius and then dissipated by the spendthrift emperors like Nero, Caligula and Commodus. When the treasury ran short, it was most often replenished by proscription and expropriation of the wealth of rich citizens. The overspending which depleted the treasury was largely due to attempts to buy popularity by means of handouts, gifts and lavish entertainments. [6]
Democratic governments commonly overspend due to political pressure and their high level of creditworthiness which enables them to borrow large sums. Such overspending is higher when legislative districts have varied levels of income and problems since all districts are taxed to provide benefits for some districts and this is politically successful. A powerful central executive such as a strong mayor with veto power can offset this tendency. [7]
In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending. This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, the bursting of an economic bubble, or a large-scale anthropogenic or natural disaster. In the United States, it is defined as "a significant decline in economic activity spread across the market, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales". In the United Kingdom, it is defined as a negative economic growth for two consecutive quarters.
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest. Loans, bonds, notes, and mortgages are all types of debt. The term can also be used metaphorically to cover moral obligations and other interactions not based on economic value. For example, in Western cultures, a person who has been helped by a second person is sometimes said to owe a "debt of gratitude" to the second person.
A consumer price index measures changes in the price level of a weighted average market basket of consumer goods and services purchased by households.
Deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget of a government, private company, or individual. Government deficit spending is a central point of controversy in economics, as discussed below.
A government budget is a financial statement presenting the government's proposed revenues and spending for a financial year. The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending. A positive balance is called a government budget surplus, and a negative balance is a government budget deficit. A budget is prepared for each level of government and takes into account public social security obligations.
In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the demand for the gross domestic product of a country. It specifies the amount of goods and services that will be purchased at all possible price levels.
Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year, and to repay the principal amount on maturity. Fixed-income securities can be contrasted with equity securities – often referred to as stocks and shares – that create no obligation to pay dividends or any other form of income.
Government debt, also known as public interest, public debt, national debt and sovereign debt, contrasts to the annual government budget deficit, which is a flow variable that equals the difference between government receipts and spending in a single year. The debt is a stock variable, measured at a specific point in time, and it is the accumulation of all prior deficits.
Mental accounting attempts to describe the process whereby people code, categorize and evaluate economic outcomes. The concept was first named by Richard Thaler. Mental accounting deals with the budgeting and categorization of expenditures. People budget money into mental accounts for expenses or expense categories. Mental accounts are believed to act as a self-control strategy. People are presumed to make mental accounts as a way to manage and keep track of their spending and resources. People also are assumed to make mental accounts to facilitate savings for larger purposes. Like many other cognitive processes, it can prompt biases and systematic departures from rational, value-maximizing behavior, and its implications are quite robust. Understanding the flaws and inefficiencies of mental accounting is essential to making good decisions and reducing human error.
Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment. These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.
Household debt is defined as the combined debt of all people in a household. It includes consumer debt and mortgage loans. A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and subsequent European economic crises of 2007–2012. Several economists have argued that lowering this debt is essential to economic recovery in the U.S. and selected Eurozone countries.
Capital expenditure or capital expense is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. It is considered a capital expenditure when the asset is newly purchased or when money is used towards extending the useful life of an existing asset, such as repairing the roof.
Monetization or monetisation is, broadly speaking, the process of converting something into money. The term has a broad range of uses.
A personal budget or home budget is a finance plan that allocates future personal income towards expenses, savings and debt repayment. Past spending and personal debt are considered when creating a personal budget. There are several methods and tools available for creating, using and adjusting a personal budget. For example, jobs are an income source, while bills and rent payments are expenses.
The United States federal budget comprises the spending and revenues of the U.S. federal government. The budget is the financial representation of the priorities of the government, reflecting historical debates and competing economic philosophies. The government primarily spends on healthcare, retirement, and defense programs. The non-partisan Congressional Budget Office provides extensive analysis of the budget and its economic effects. It has reported that large budget deficits over the next 30 years are projected to drive federal debt held by the public to unprecedented levels—from 98 percent of gross domestic product (GDP) in 2020 to 195 percent by 2050.
Fund accounting is an accounting system for recording resources whose use has been limited by the donor, grant authority, governing agency, or other individuals or organisations or by law. It emphasizes accountability rather than profitability, and is used by Nonprofit organizations and by governments. In this method, a fund consists of a self-balancing set of accounts and each are reported as either unrestricted, temporarily restricted or permanently restricted based on the provider-imposed restrictions.
In economics, personal income refers to an individual's total earnings from wages, investment enterprises, and other ventures. It is the sum of all the incomes received by all the individuals or household during a given period. Personal income is that income which is received by the individuals or households in a country during the year from all sources. In general, it refers to all products and money that you receive.
The Australian government debt is the amount owed by the Australian federal government. The Australian Office of Financial Management, which is part of the Treasury Portfolio, is the agency which manages the government debt and does all the borrowing on behalf of the Australian government. Australian government borrowings are subject to limits and regulation by the Loan Council, unless the borrowing is for defence purposes or is a 'temporary' borrowing. Government debt and borrowings have national macroeconomic implications, and are also used as one of the tools available to the national government in the macroeconomic management of the national economy, enabling the government to create or dampen liquidity in financial markets, with flow on effects on the wider economy.
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs). Investors are repaid from the principal and interest cash flows collected from the underlying debt and redistributed through the capital structure of the new financing. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS).
The Moonlight Clan is a large group of people who expend their entire salary before the end of each month. The term is derived from a lunar cycle. While yue guang translates directly to "moonlight", it is also a pun derived from the combination of its individual words, yue and guang. Zu refers to a group of people who shares this characteristic. In the United States, a comparable notion is referred to as "living paycheck to paycheck". "Moonlight clan" is a relatively new Chinese neologism to describe young workers who spend their salaries faster than they earn it. Opposite of the Western definition of the word "moonlighting," which means to take on more than one job to earn more money. The Moonlite are generally younger generations. They are different from their parents' diligent and thrifty consumption concepts. To chase new trends and have fun, they don't care about the cost as long as they like. Material life is what they yearn for, but also the motivation to earn money. The older generation believes that "saving is more significant than spending", and they are very upset about their behavior; however, their motto is "spending can lead to make more money". The Moonlite are companies' favorite group of consumers, since they have strong purchasing power from desires; more importantly, they have the ability to make money and have money to spend.