Maybe you've heard it from your parents or seen it on social media, but a certain piece of advice seems to pervade the financial world: If you just stop spending on unnecessary luxuries — from lattes to avocado toast — you could afford the everyday essentials without the struggle.
However, that's often not true. The problem is that simply telling people, particularly millennials (ages 24 to 39), that they have a spending problem or recommending they trim their budget if they're struggling to afford expenses misses the point, experts say.
"In my experience, those with few resources are quite savvy with the resources they do have — they are creative and often manage their money better than people who do who have money because they have to," says Kristy L. Archuleta, a professor in the University of Georgia's financial planning, housing and consumer economics department.
Why do people immediately assume it's a spending problem?
The misconception around why some people struggle to make their money stretch to cover all their expenses and savings goals is due, in part, to the fact that poverty and living in poverty is not a "one size fits all issue," Archuleta tells CNBC Make It.
This thought process typically happens because most Americans are trying to simplify a situation that often stems from complex problems. Those who are living in poverty or even those juggling expenses paycheck to paycheck may also be grappling with issues that range from racial and ethnic inequality to addiction and mental health issues, says Farnoosh Torabi, personal finance author and host of the "So Money" podcast.
In my experience, those with few resources are quite savvy with the resources they do have — they are creative and often manage their money better than people who do who have money because they have to.Kristy Archuletaprofessor at the University of Georgia
Americans are a culture obsessed with budgeting and cutting coupons, Torabi tells CNBC Make It. "We tend to have a narrow mindset when it comes to earning our financial independence," she says. "We are led to believe that if people just cut their Netflix subscriptions or stopped buying $9 smoothies, that they'd be able to retire wealthy."
Americans tend to also buy into the mindset that they have fewer options when it comes to their income potential, so they focus on what they buy and how they spend, Torabi says. Cutting down your budget to make ends meet might feel like something that's more in your control.
But for some Americans, simply cutting entertainment and dining budgets — if they even had them to begin with — will not solve all their financial shortfalls. In many cases, they still can't make child care or student loan payments. What do they do then?
For some Americans, there are systemic issues at play
"I'm all about taking financial matters into your own hands to the fullest extent. It's important to save and be mindful of spending, but it's not the true reason so many people are struggling financially," Torabi says, pointing to the fact that wages have been stagnant for decades while the cost of living has escalated.
At some point, you don't have a spending problem, Torabi says. Instead, "you might have an income problem or perhaps a living-in-the-current-United-States problem," Torabi says.
Real wages effectively remained stalled last year, showing only a 0.2% year-over-year increase, according to the PayScale Index. But looking longer term, PayScale found median wages, when adjusted for inflation, actually declined 9% since 2006.
Meanwhile, basic costs increased year-over-year by 2.3% from December 2018 to December 2019, according to the Bureau of Labor Statistics's Consumer Price Index. The cost of medical care rose 4.6% in 2019, the largest year-over-year increase since 2007, the BLS reports. Housing also jumped 3.2% last year, while education expenses rose 2.1% and food prices increased about 1.8%.
You can skip on lattes all you want, but if you have $100,000 debt from student loans and you're a psychologist or you're in social sciences or the arts, you're going to have a hard time paying for those loans.Alex Melkumianfinancial therapist and founder of the Financial Psychology Center
The reason why many others are in debt is not because of buying too much coffee. Rather, it's debt from expensive mortgages, student loans or even medical expenses, Alex Melkumian, a financial therapist and founder of the Financial Psychology Center, tells CNBC Make It.
"You can skip on lattes all you want, but if you have $100,000 debt from student loans and you're a psychologist or you're in social sciences or the arts, you're going to have a hard time paying for those loans," he says.
Overall, there are many systemic and policy issues that impact our financial lives, Torabi says. "It's not fair or accurate to just call out somebody's spending habits."
What to do if you are simply spending too much
That's not to say no one is overspending. Almost three quarters of Americans have a budget of some kind, but 79% say they can't stick to it, according to a December poll of 2,000 U.S. adults by shopping site Slickdeals. On average, they overshoot by about $150 a week, or about $7,400 a year.
The top three categories that cause overspending are online shopping, grocery shopping and subscription services, the poll found, although coffee did make the top 10.
If you fall into that camp, it may be time to build a sustainable budget or take a hard look at your existing budget. Where are you overspending? What can you do to adjust to make it more reasonable?
You may want to start by eliminating distractions that can push you to spend: avoid social media, unsubscribe from marketing emails and untether your credit card from all those apps on your phone.
"We sometimes turn to spending as a way to release stress, anxiety, and other bad feelings — It's a coping mechanism.Farnoosh Torabipersonal finance expert and author
That doesn't mean you can't have any fun with your budget, Melkumian says. To stay on track and avoid any feelings of deprivation, he recommends his clients have a small amount set aside in their monthly budgets for "mandatory splurging." This could be 1% of your monthly budget or an actual dollar amount — from $5 to even $100, whatever your budget will responsibly allow.
"When people have a hard time looking at numbers, because it means deprivation and it means the budget is going to take away my freedom, putting a line item that says something fun like mandatory splurging re-writes the narrative and helps redefine what that budget means to them," Melkumian says.
If you are truly struggling with overspending, try to understand what's at the root of it, Torabi says. Are you spending when you're emotional? What's triggering those emotions?
"We sometimes turn to spending as a way to release stress, anxiety and other bad feelings," Torabi says. "It's a coping mechanism and produces an actual chemical 'high'...so we keep doing it." Take time to solve the underlying problem: why you are spending in the first place. That may mean seeking out some counsel.
"You may want to work with a professional to sort some of your issues out and cure this once and for all," Torabi says.
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