It is indeed a material world. When it comes to spending, there is a culture of consumption marked by not only rising levels of disposable income, but also rising levels of consumer debt and declining household savings rates. While economists tout the virtues of consumer spending for keeping economies afloat, on a more personal level, rising levels of debt are cause for concern. Without dwelling on the all-too-familiar pitfalls associated with living beyond your means, let’s take a look at some common financial mistakes that can be avoided easily.

The National Stats

The Federal Reserve Bank of Cleveland reports that the personal savings rate in the U.S. has declined roughly 10% from 1985 to 2005, while the debt-to-income ratio has nearly doubled. Canada has followed a similar course, with household debt rising at twice the rate of disposable income over the same time.

Common Mistakes

Although statistics such as these may lead us to think that overspending is normal, it is not necessarily wise and perhaps even risky. But, with a little thought and effort, you can protect your paycheck by being aware of these common financial mistakes and how to avoid them:

#1: Excessive/Frivolous Spending
Great fortunes are often lost one dollar at time. It may not seem like a big deal when you pick up that double-mocha cappuccino, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week spent on dining out costs you $1,300 per year, which could have gone toward an extra mortgage payment or a number of extra car payments.

#2: Never-Ending Payments
Ask yourself if you really need items that keep you paying money every month, year after year. Things like cable television, subscription radio and video games, cell phones and pagers can force you to pay unceasingly but leave you owning nothing.

#3: Credit Cards
Living on borrowed money has become somewhat normal as an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries and a host of other items that are gone long before the bill is paid-in-full. Paying interest as a result of failure to pay off credit card bills makes the price of the charged items a great deal more expensive. (To learn more about credit cards, see Take Control Of Your Credit Cards and Credit, Debit And Charge: Sizing Up The Cards In Your Wallet.)

#4: New Cars
Millions of new cars are sold each year, although few buyers can afford to pay for them in cash. But the inability to pay cash for a new car means an inability to afford the car (being able to afford the payment is not the same as being able to afford the car). Furthermore, by borrowing money to buy a car, the consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years even though an increasing number of cars offer factory warranties that provide 100,000 miles or 10 years of coverage. (To keep reading about this subject, check out Car Shopping: New Or Used?)

#5: Buying More Car Than You Need
Sometimes a person has no choice but to take out a loan to buy a car, but how much does any consumer really need a large SUV? Such vehicles are expensive to buy, insure and fuel. Unless you tow a boat or trailer, or need an SUV to earn a living, is an eight-cylinder engine worth the extra cost of taking out a large loan? If you need to buy a car and/or borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain.

#6: Buying Too Much House
When it comes to buying a house, bigger is also not necessarily better. Unless you have a large family, choosing a home with 6,000 sq ft may cause you to pay for more than you need or use. Taxes, maintenance and utilities on such a big home will put a significant, long-term dent in your monthly budget. (For more on buying a home, see Mortgages: How Much Can You Afford? and Downsize Your Home To Downsize Expenses.)

#7: Refinancing Your Mortgage and Taking Cash Out
Your home is your castle. Refinancing and taking cash out on it gives ownership of your castle to someone else. It also costs you thousands of dollars in interest and fees. Smart homeowners want to build equity. They don’t want to make payments in perpetuity. (For further reading see Mortgages: The ABCs Of Refinancing.)

Living Paycheck to Paycheck

The cumulative result of all this spending puts people into a precarious position, one in which they need every dime they earn - one missed paycheck would be disastrous. It’s not that people in such a position don’t earn enough money; it’s that they spend more than they earn. Everyone has a choice, so it’s just a matter of making savings a priority.

The U.S. household savings rate has fallen to levels that haven’t been seen since the Great Depression. As of 2007, the U.S. savings rate has fallen below 1%, while other countries see considerably higher rates of personal savings. For example, the Netherlands, Italy, Norway, Germany and France, each have personal savings rates of 10% or more according to the OECD Factbook 2005. Most countries in the Eurozone have personal savings rates that average 10%, and countries in Asia boast savings rates of around 30% and higher.

Making a Payment Vs. Affording A Purchase

To steer yourself away from the dangers of overspending, start by monitoring the little expenses that add up quickly. Next, you need to monitor the big expenses. Think carefully before adding new debts to your list of payments, and keep in mind that being able to make a payment isn’t the same as being able to afford the purchase. Finally, make saving some of what you earn a monthly priority.