Often, our spending decisions are ruled by feelings. When our willpower is low and suggestive advertising is prevalent, we may fall victim to certain triggers and spending traps. Understanding how and why we overspend is an important first step to greater financial health.
Have you ever experienced a “high” from buying something you wanted? There is a certain thrill that can be derived from getting what we perceive to be a good bargain. The next time you are about to make an impulse purchase, make a conscious effort to put away your wallet, step back from the rack or online shopping cart, and reflect on whether this is an item you need.
Not having a budget or ignoring it
They say that ignorance is bliss, but when it comes to your finances being clueless is not a smart move. Think of a budget as a road map of sorts where you are in the driver’s seat, making conscious decisions about how you will spend your money. When creating a budget, factor in splurges for special occasions or planned spending at different times of the year. If you are addicted to fancy coffee drinks, be sure to add a line item for that expense as well.
Falling for sales gimmicks
Sales can be great, but the challenge comes when you buy something simply because it’s on sale. Sometimes retail prices are inflated just before an advertised sale, leaving you paying nearly full price. To avoid falling for these sales gimmicks, you should ask yourself if the sale item is something you’ll need in the short term (i.e. within the next three to four weeks). If not, go ahead and pass on the sale.
Chasing after “free” stuff
Be aware that “free” does not always mean free. Chasing after member rewards, stars, and treats usually means you end up spending money to earn a freebie. Financing the purchase of new furniture, appliances, or electronics may come with the promise of 0% interest or no payments for six months, but these offers have a hidden cost of high-interest rates. Remember, a deal is only a deal if it doesn’t cost you more than the ticket price.
Resisting necessary lifestyle changes
Sometimes a lifestyle change is the only route to ending a spending habit that you cannot afford. When it comes to your home, downsizing may be in order particularly if you are an empty nester. Do you rent a storage unit? You may want to consider moving into a bigger house or donating or selling some of your stuff. Adjusting your lifestyle to prioritize and budget for the things you want puts you in the driver’s seat to living a happier and healthier life.
Not tracking your spending
Think about how many small purchases (under $5) that you make daily that don’t seem like much at the moment, but when all totaled, they can make a dent into your budget. Using credit cards or digital wallet services desensitizes us to the feelings of outlaying cash. When you start tracking expenditures, you create awareness of where and on what you spend your money, which drives personal accountability. There are many online tools and apps available to help you track spending, but paper and pencil work just as well, too.
For more tips on how to manage your spending, explore the Creating a Budget module on Your Financial Best.