Impulse spending is the enemy of wealth. It’s easy to persuade ourselves that it doesn’t matter because it’s invariably on something small. Most of us don’t buy a house, car or other major purchase on impulse. We’re more likely to buy clothes, books, food, beverages, or gym memberships we’ll never use.
As always though, little things add up. A recent survey by Slickdeals found that Americans are impulsively spending an average of $450 a month, which is $5,400 a year, and a very significant $324,000 over a lifetime. Imagine if that was all invested with compound interest instead. How much earlier would people be hitting their big financial goals?
While many of us are impulsive spenders, it varies between individuals, and you’ll often find that wealthy people have simply kicked the habit (or never acquired it). Their purchases are carefully considered and usually planned in advance, after a price comparison, and a weighing up of opportunity costs (which is basically just assessing what else could they invest the money in, that would be a better opportunity).
That’s why it’s important to get impulsive spending under control. It really can improve your overall financial health. There are so many little things you can do that will vastly improve your relationship with money, and add to your wealth long-term. Getting impulse spending under control is one of them. It can make you feel more in control of your finances long-term, and more confident in your ability to build wealth over time.
Most people will tell you that ‘making a budget’ is the way to avoid impulse spending, which is good advice, but really doesn’t address the emotional nature of the problem. Here are some practical tools I’ve used to make impulse spending a thing of the past, permanently.
In Western society, most of us have too much stuff. So much so, that we’re often unaware of what we do have. It’s bad enough when you impulse buy an item of clothing, only to go home and realise you already own an almost identical one. But sometimes we spend on more expensive stuff that we already have.
This is even more likely to happen with non-physical spending. An acquaintance of mine just spent a significant sum on travel insurance, before realizing he already had it as part of his premium banking service. I’ve just canceled a cloud storage option I’d been paying for all year, because I hadn’t realized I already had a huge chunk of cloud storage included in another service I’m paying for.
So get organised, in every area. Know what you have, what you need and what you don’t. Go through your home and your hard drive, and stop impulse spending on physical and digital products you already own.
Simply doing an inventory of what you own can have an impact on impulse spending. It will make you think about all the stuff you have that you don’t really need or use when you’re tempted to add to it with another impulse buy.
Push purchases to the next pay cycle
Whether you’re self-employed and waiting for clients to pay your monthly invoices, or working for the man and looking forward to your next paycheck, consider delaying that impulse buy until next time you’re paid.
Even if you’re fortunate enough to have money in hand towards the end of each pay period, deciding to send it on over to your savings account or otherwise invest it, and delay a purchase until you have fresh funds available, can give you time to think things through.
Mostly you’ll find you don’t want the item you thought you did, or you’ve forgotten what it was. And if you find you still really do want it? Go ahead and get it. It’s no longer an impulse buy, but a considered purchase.
Try a no-spend month
Or even a no-spend year. This sounds drastic, but simply involves not spending anything at all above your necessary fixed outgoings. This means that once your rent and bills are paid, you’ll only spend money on absolute necessities, such as groceries.
A no-spend month can be surprisingly liberating and actually reduce stress overall. Not only do we tend to impulse buy a lot, but we also spend a lot of emotional energy arguing with ourselves as to whether we should make a purchase. Simply deciding that, this month at least, there will be no purchases, beyond fixed outgoings, takes away what is often a decision that needs to be made daily, or multiple times a day.
Put your goal list in your wallet
When trying to get control of our finances, we’re often encouraged to focus on why we need to make better decisions, or what our long-term wealth goals are. Whether you’re trying to get out of debt, saving the deposit for a house, or aiming to retire at 40, write that goal down. Put it in your wallet. Wrap it around your credit card if you have to. Just make sure you see that goal before you splash out on some trinket that is probably 1000 times less important to you than the goal is.
Need an extra incentive? Write down that figure from the top of this article. $324,000, plus interest. That’s your lifetime reward for curbing your impulse spending. Doesn’t it sound worth it?
This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
Originally published at wealthtender.com on August 7, 2019.