What does the term 'overspending' refer to?

Overspending is defined as spending more money than is budgeted or earned. This usually indicates a lack of control over finances and can lead to debt accumulation if it occurs regularly. When individuals or households spend beyond their means, they are not only exceeding their planned budget but also possibly engaging in behaviors that will negatively impact their financial stability.

The key aspect of overspending lies in its relation to both budgeting and income. If someone has set a budget based on their earnings but then spends more than that amount, they are likely going into debt or depleting their savings. This concept reinforces the importance of maintaining a budget that reflects true income and necessary expenses to avoid financial pitfalls.

Understanding overspending is crucial as it helps individuals recognize harmful spending patterns, leading to better financial decisions in the future.