If you were to look around your home, you’d find quite a few things that you’d bought impulsively and no longer use. People tend to struggle with impulse spending and end up buying things that they hardly ever use or didn’t need in the first place. According to a survey carried out by Slickdeals in April 2020, $182.98 is spent every month on impulse purchases by an average American. The numbers for the same earlier that year in January were approximately $155.03. The survey also revealed an interesting insight that people spent more on impulse purchases despite undergoing the financial turmoil of the pandemic. This shows that people were willing to spend more to better their mood, ignoring the consequences of such purchases on their finances.
To explain impulse spending in layman’s terms, it is linked to the psychological need of acquiring things without actually needing them. Impulse spending can be quite dangerous for your long-term finances as well. It can be tough to control your desires leading one to succumb to purchasing products or services that add little to no value to your life. But, it is important to understand how impulse spending can affect your financial planning and what you can do to prevent this from happening.
Let us discuss some ways in which impulse spending can have a detrimental effect on your finances:
- Long-term financial goals take a backseat
- Increase in credit card debt
- Rise in anxiety levels due to negative emotions
- Can lead to a poor standard of living
Engaging in impulse spending sets you off on a constant loop of purchasing new items, losing interest in them, and then purchasing newer items to experience that high again that you get from buying in the first place. This constant loop results in eating up the majority of your time, energy, and money. This behavior causes a strain on your financial resources and ends up distracting you from working on your financial goals such as retirement planning, saving up for buying a home, etc. Most impulse shoppers don’t think of the future and are concerned with the present only. They put their future goals on the back burner to focus on their current needs. Needless to say, this behavior ends up having a detrimental effect on your financial wellbeing in the long term. If you go on impulse buying, you may have a house full of products but you may not have enough money saved up for tackling a medical emergency, higher education costs for your children, sprucing up your home, paying utility bills, and more.
Those people who engage in impulse shopping tend to be driven by a burning desire to buy a product or service. This activity can be hard to sustain on a limited monthly salary. So, one does the next best thing: satisfy their urge to spend through a credit card. Credit cards are the most commonly used method by impulse shoppers to buy stuff. Credit card limits provide you a false sense of security where you believe you have the funds to purchase more things. What this does is you take on more debt that pushes your overall debt and monetary outflows to greater heights as you get trapped into paying high credit card interest rates. Additionally, your credit score takes a hit which may prove to be detrimental in the future if you ever wish to take a loan to buy a home or a car.
After you’ve experienced the high of impulse shopping, there comes a moment when you regret purchasing the product or service in the first place. You feel guilty since most likely your purchase didn’t fulfill any pressing need or add any value to your life. These negative feelings can cause you to feel anxious and trigger anxiety in you leading to a lot of stress, tension, and pressure as you contemplate the effect of your spending on your overall finances.
A person's standard of living is not simply defined by the material possessions they own but also depends on their financial preparedness, say in the case of a medical or financial emergency. One may derive a sense of financial security from their material possessions that do not contribute to your standard of living in the long run. If one suffers a job loss or pay cut, the upkeep of such material assets can be a source of stress. Due to a paucity of funds, you will also not be able to live a life of a high standard of living.
How to keep your financial plan on track by avoiding impulse spending
Let’s go through some ways in which you can avoid or curb your impulse spending and manage your money more efficiently:
- Stick to a budget to control your spending habits
- Secure your financial future through investment
The first step one needs to take when it comes to bringing their spending habits under control is to make a budget. Not only does this help you keep an eagle eye on your finances but it also enables you to plan, keep a check on your outflows, curb your spending habits, and live a wholesome and comfortable life. A budget does not have to be restrictive. The purpose of a budget is to empower you to live more rationally rather than frugally. When you go about making a budget for yourself, keep separate heads for savings, investments, utility expenses, etc. You don’t have to feel guilty about spoiling yourself once in a while but make sure to assign a monthly limit to this. To ensure that this limit does not spill over into your savings and investments and that you’ve paid all your monthly utility/other bills. As long as you ensure that there’s no interference between your impulse shopping and other heads, you can rest easy. Setting a limit on your monthly shopping will help you be more in control of your funds and ensure that you do not end up overspending on impulse.
Through the right investments, you can multiply your money over time, save tax, and secure your future. If you make investing a part of your monthly to-do list, you can achieve:
- You put the power of compounding to good use and watch your money grow with time allowing you to safeguard your future, increase financial liquidity, raise your standard of living, and build a small fund for emergencies.
- You put the brakes on your impulse spending by earmarking more money for investing. This in turn helps you lower your dependence on debt, enhances your financial well-being, and enables you to take charge of your money.
It’s no secret that if you have savings, they can be a source of relief when you’re feeling the pinch. Savings acts as a financial cushion in times of emergencies helping you sail through such situations comfortably. Ensure that you stick to your savings target each month which would allow you to have sufficient funds when needed. This would also help you have better control over your spending habits since you’d be left with a limited amount of money to shop with.
If you cannot exercise control over yourself when it comes to credit cards, it's better to not use them at all. Credit cards give one a false sense of finances and can induce one to buy products or services that are out of their budget. It’s better to simply use a debit card instead when you go out shopping. Since you’ll have access to a limited amount of money, it’ll help you keep your overspending in control. Cash is even more useful than a debit card as you can decide how much you want to spend on a given day and keep a separate amount for each day of the week/month. For example, if you’re going to a mall, don’t carry more than a $100 bill. This can automatically steer you away from items that are costlier than the money you have with you and force you to stick to your budget. Furthermore, with cash, you can examine how much money you’ve spent, how much you’re left with which gives you a clear idea about your expenses. When using cards, it’s easy to muddle up this picture since you’re not fully aware of the actual extent of your spending.
Sometimes it can be tricky when you’re trying to distinguish between your needs and wants. The picture gets blurry. Needs are necessities such as getting a new phone if your old one doesn’t work anymore or you lost one. However, a want is simply a desire like, for example, wanting a new car when you already have a perfectly good one sitting in the garage. Though it can be tough at times when you’re trying to understand your needs and wants, you can make a call by delaying the purchase by a few days to figure out if the item you wish to purchase is a necessity or a want.
No one would argue against the idea that digitalization has made things a lot more convenient when it comes to shopping but it has created some issues as well. Online shopping is a major contributor when it comes to impulse buying making it tough to get rid of the habit. One may unsubscribe from newsletters from shopping websites so that you won't get tempted to buy when the next flash sale happens during the holiday season. Another good step is to delete all shopping apps from your phone as a lot of people end up shopping out of boredom since they have easy access to such apps on their phones. Hence, going after the root and cutting it at the source can help you keep your spending in check and in time stop it entirely.
Impulse spending is a serious issue plaguing our society. A lot of folks engage in it quite frequently chalking off their actions thinking that it's a harmless indulgence. This is mostly done to make themselves feel better. While there is nothing wrong in spoiling yourself once in a while, making a habit out of it is a concerning matter. One should be rational about where and how much they spend taking care to spend on things that add value or fulfill some need of yours. The aforesaid tips can help ensure you do not go beyond your budget and prioritize saving and investment to build a financially stable future for yourself. Also, make sure you adhere to small details such as using cash or debit card for shopping, not using online shopping websites, delaying your purchases, etc.
Consider consulting a financial advisor to learn how to manage your finances better to sustain a better standard of living and secure your financial future.
The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice. A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.