The Psychology of Business Spending: Why We Overspend and How to Stop

Company executives often get surprised when they see their budgets from the past period. They usually find that spending limits have been exceeded. Sadly, this is a common issue. It often worsens financial results and limits investment options.

But why does this happen? It’s not just about unforeseen circumstances — special ‘risk funds’ are usually created for them. When analysing cost overruns, you should pay attention to objective factors and subjective psychological traps.

In this article, we’ll look at why businesses are prone to cost overruns and how to build an expense tracking system to avoid this problem.

Psychological Traps of Excessive Expenses for Businesses

As usual, the reasons for exceeding limits are trivial human desires, preferences, judgements, and fears. Let’s take a closer look at the main motivations that make you spend too much money without objective reasons.

1. The Illusion of An Unlimited Budget

It is common for startups and companies that receive investment funding. Managers focus on the frantic pace of development, forgetting about saving money and optimising work processes. However, the phase of rapid development cannot last forever, so at some point, cost overruns come to the fore and create a real crisis situation.

2. Emotional Costs in Business

A company should not be considered a kind of ideal superhuman structure free from subjectivity. It is also run by living people who have their emotions. When making decisions, they are often guided by the fear of missed opportunities (FOMO), buying subscriptions, goods, and services just because competitors are already doing it. Or they continue to invest in unprofitable areas, unwilling to admit mistakes. Alternatively, they are overly optimistic about the future, expecting unrealistic profit margins.

3. Low Level Of Transparency

The lack of real expense tracking means that businesses may not know how much they actually spend. Why does this happen? Usually, the root of the problem is the excessive dispersion of payments that go through different banks, payment systems, and funds. Weak analytics also adds to the problem, forcing you to summarise the results manually, leaving room for many mistakes due to the human factor.

How to Break the Cycle of Excessive Spending?

As is always the case with psychological problems, one part clings to another, forming a kind of ‘vicious circle.’ Fortunately, you can break it and regain control over the expense side of your corporate budget. To do this, you need a modern digital expense tracking solution.

The main requirements for it are as follows:

• Automatic expense registration. This means that all corporate payment cards must be connected to a centralised cloud platform.
• Support for different types of payment instruments. The system should work with credit, debit, and prepaid cards.
• Receiving information in real time. Even delays of several minutes will create space for financial fraud and mechanical accounting errors.
• Support for different platforms. To be able to access information at any time, the expense tracking system should be available for desktop and mobile devices.
• Approval of expenses. A vital requirement is the ability to create rules for automatic expense approval and scenarios in which transactions will be submitted for manual approval.
• Built-in analytics. The system should have dashboards with real-time updates and build custom reports to provide all the necessary data.
• Integration with accounting applications. If you already have such a comprehensive expense tracking platform and collect a huge amount of data, why not use it to automate accounting — you just need to take one additional step.

Integration Process

The Wallester Business platform meets all of the above requirements. Moreover, it has a simple and fast expense-tracking integration procedure that consists of the following steps:

1. Registration in the system. Create a business account and verify the company.
2. Setting up the API (optional for large businesses). Connect to the platform via the API to automate operations.
3. Issue of corporate cards. Generate physical and virtual cards for employees.
4. Defining limits and rules. Setting up restrictions, allowed expense categories, and access levels.
5. Integration with accounting systems. Synchronisation of transactions with financial platforms.
6. Activation of real-time monitoring. Enable push notifications, cost analytics, and reporting.
7. Launch and testing. Checking all processes in the test environment before full use.
8. Employee training. Familiarising staff with expense tracking rules and system functionality.
9. Monitoring and optimisation. Analysing expenses, adjusting limits, and making improvements to financial management processes.

The advantage of Wallester Business is that it is an ambitious project that continues to evolve, adding new features, covering new markets, and entering into partnerships with large businesses. Here’s how the company’s co-founder Sergei Astafjev commented on the results of the past year:

“Looking back at 2024, I am filled with great pride at how our team dealt with the many challenges thrown at them, both by external factors and general market conditions. We never stopped believing in our ability to deliver exceptional solutions for our partners and clients. I would like to thank every business that chose Wallester as their partner throughout the year.”

Conclusions

Expense tracking is about objective rules, dry analytics, and the psychology of financial decision-making. To avoid cost overruns, businesses should be aware of possible subjective pitfalls, use automated transaction tracking tools, and implement a systematic approach to decision-making.

Using cloud-based platforms like Wallester can reduce subjectivity in implementing budget plans. These technologies help your business control all transactions, improving financial results and creating new investment prospects.