Why it's easier to underestimate your costs and spend too much now

Image Credits: UnsplashImage Credits: Unsplash
  • Consumers often underestimate exceptional expenses, leading to overspending.
  • The convenience of digital transactions can make it easier to lose track of spending.
  • Failing to account for inflation can result in a significant gap between expected and actual expenses.

Managing personal finances has become increasingly challenging. With the rise of digital transactions, subscription services, and the ever-present temptation of online shopping, it's easier than ever to underestimate your expenses and overspend. This article delves into the reasons behind this phenomenon and offers practical tips to help you stay on top of your budget.

The Digital Age and Its Impact on Spending

The convenience of digital transactions has revolutionized the way we spend money. However, this convenience comes with a downside. According to a study by NYU Stern, most consumers underestimate their exceptional expenses, leading to overspending. Adam Alter, an assistant professor of marketing at NYU Stern, explains that "chronically under-accounting for these expenses can cause consequential errors in financial planning, resulting in overspending and under-saving".

The Psychology of Exceptional Expenses

Exceptional expenses, such as a celebratory dinner or an unexpected car repair, are often perceived as one-off events. However, these expenses occur frequently enough to significantly impact your budget. Research by Alter and Princeton doctoral candidate Abigail Sussman found that participants spent almost double on exceptional expenses compared to their estimates. This discrepancy arises because consumers categorize exceptional expenses differently from ordinary ones, leading to a consistent underestimation of their frequency and impact .

The Role of Subscription Services

Subscription services have become a staple in modern life, from streaming platforms to meal kits. While these services offer convenience, they can also lead to unnoticed recurring expenses. A report from Cashflow Cafe highlights that failing to monitor and control costs can quickly lead to overspending. Without a system to track these recurring expenses, it's easy to lose sight of how much you're actually spending .

Inflation and Its Hidden Costs

Inflation is another factor that makes it easier to underestimate expenses. As prices rise, the cost of everyday items and services increases, often without immediate notice. This gradual increase can lead to a significant impact on your overall spending. Many consumers fail to adjust their budgets to account for inflation, leading to a gap between expected and actual expenses.

Practical Tips to Avoid Overspending

Create a Realistic Budget: Start by creating a budget that accounts for both ordinary and exceptional expenses. Overestimate your expenses to ensure you're prepared for unexpected costs.

Use Budget Management Software: Tools like CaFE can help you track your spending in real-time, making it easier to spot overspending and adjust your budget accordingly .

Regularly Review Financial Statements: Make it a habit to review your bank statements and compare them to your budget. Look for any discrepancies and adjust your spending as needed.

Monitor Subscription Services: Keep track of all your subscription services and evaluate whether you still need them. Cancel any that you no longer use.

Plan for Inflation: Adjust your budget to account for inflation. Regularly review the cost of your regular expenses and update your budget to reflect any increases.


Financial Planning
Image Credits: Unsplash
Financial PlanningJuly 14, 2025 at 6:00:00 PM

Retirement planning for young workers in China feels pointless. Is it?

Let’s get something straight: if you’re 26, living in Chengdu, grinding through a low-paid job you could lose tomorrow, and barely covering rent,...

Financial Planning
Image Credits: Unsplash
Financial PlanningJuly 13, 2025 at 11:30:00 AM

Early retirement savings advice

Some financial truths don’t change with the markets. One of them is this: the earlier you start saving for retirement, the more freedom...

Financial Planning
Image Credits: Unsplash
Financial PlanningJuly 13, 2025 at 12:30:00 AM

Why you can’t get out of debt—yet

If you’ve ever felt like your debts are multiplying no matter how hard you try to fix things, you’re not alone. Across Singapore,...

Financial Planning United States
Image Credits: Unsplash
Financial PlanningJuly 12, 2025 at 1:00:00 AM

How to build retirement security on a limited income

For many families earning just enough to cover their monthly essentials, retirement can feel like a distant and unrealistic goal. When income barely...

Adulting Singapore
Image Credits: Unsplash
AdultingJuly 11, 2025 at 11:30:00 PM

Is the cost of living in Singapore too high—or are our expectations breaking?

It started with a question that wasn’t meant to provoke, but did. “People who are complaining that Singapore is too expensive to live...

Financial Planning
Image Credits: Unsplash
Financial PlanningJuly 11, 2025 at 5:00:00 PM

How to raise a financially independent teen

It’s always been a challenge to grow up and become financially independent—but today’s teens are navigating a more complex, more expensive world than...

Financial Planning United States
Image Credits: Unsplash
Financial PlanningJuly 9, 2025 at 3:30:00 PM

Why vibe-based budgeting is catching on with Gen Z

A funny thing is happening in personal finance: people are making money decisions not just based on spreadsheets, but on vibes. Seriously. The...

Financial Planning Singapore
Image Credits: Unsplash
Financial PlanningJuly 8, 2025 at 5:00:00 PM

Warning signs you might be approaching bankruptcy without realizing it

In Singapore, bankruptcy isn’t just a legal status. It’s a sign that the personal financial system you’ve been relying on—credit cards, bank loans,...

Financial Planning United States
Image Credits: Unsplash
Financial PlanningJuly 8, 2025 at 3:30:00 PM

Is 'revenge saving' helping or hurting your financial plan?

Some people cope with stress by spending more. Others cope by spending less—but not always for the reasons you'd expect. In recent months,...

Financial Planning United States
Image Credits: Unsplash
Financial PlanningJuly 8, 2025 at 12:00:00 AM

Why the weak dollar isn’t stopping Americans from traveling

A last-minute summer flight to Rome might cost less than it did last year—but once you land, your dollar doesn’t stretch nearly as...

Financial Planning United States
Image Credits: Unsplash
Financial PlanningJuly 6, 2025 at 1:00:00 PM

Why timing your inheritance matters more than the amount

You’ve probably heard the headlines: Baby boomers are about to pass down the greatest wealth transfer in history. We’re talking trillions—an estimated $84...

Financial Planning United States
Image Credits: Unsplash
Financial PlanningJuly 5, 2025 at 9:00:00 PM

Blunt comments about divorce and financial failure

Kevin O’Leary, the Canadian entrepreneur and Shark Tank star known for his no-nonsense style, recently stirred public debate by calling divorce “a stupid...

Load More