How Impulse Spending Can Get Your Financial Planning off Track
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Impulse spending is something that a lot of people struggle with. If you scan your home, you are bound to find many unnecessary items that you no longer use and had impulsively bought at some point in your life. As per a survey conducted by Slickdeals in April 2020, an average American spends approximately $182.98 per month on impulse purchases. The figures in January earlier that year were approximately $155.03. The survey also highlighted how these figures increased during the pandemic. This shows that despite the financial turmoil of the pandemic, people were still indulging in impulse purchases to better their mood while ignoring the repercussions of such purchases on their finances.
Impulse spending is linked to the psychological need of acquiring things rather than a real requirement. This is why it is considered a lot more dangerous for your long-term finances too. It can sometimes be hard to control the mind and its desires. As a result, most people succumb to short term weaknesses and end up losing their hard-earned money to products and services that add little to no value in their life.
However, it is important to understand how impulse spending can get your financial planning off track and what you can do to prevent this.
How does impulse spending interfere with financial planning
Here are some ways in which impulse purchases can affect your finances:
1. You forget your long-term financial goals
Impulse spending is a constant loop of buying new items, losing interest in them, and then buying newer items to please yourself. This constant loop takes up most of your time, energy and resources. Not only does this cause a financial strain on you, but it also distracts you from your financial goals, like planning for your retirement, saving up for a home purchase, etc. Most impulse shoppers like to think of the present only and end up completely ignoring their future. They sideline their future goals in order to make room for their current needs. In the long term, such a pattern can be detrimental to your financial well-being. While you may have a house full of products, you might not have enough savings to cater to medical expenses, higher education costs of your children, home renovation costs, utility bills, and more.
2. You increase your credit card debt
Impulse shopping can create a burning desire to purchase a product or service. This can be hard to keep up on a limited monthly salary. Hence, in the case of a lack of funds, you are likely to depend on a credit card. As a matter of fact, credit cards are the most common method of purchase used by impulse shoppers. Credit card limits can give you a false sense of financial security that coerces you to buy more things. This can increase your overall debt and monetary outflows with high credit card interest rates. Moreover, this also upsets your credit score that leads to higher interest rates on future loans, such as a home or car loan.
3. It can create negative emotions causing anxiety
Many a time, impulse spending can trigger negative emotions. More often than not, people buy things on an impulse to make themselves feel better about a bad situation in their life. However, after buying the item and finding no use or worth in it they end up feeling guilty about the purchase. These negative feelings create anxiety. On the one hand, there is the guilt of buying an unnecessary item and on the other is the realization of how it can impact your overall finances. This can lead to a lot of stress, tension, and pressure.
4. It can lead to a poor standard of living
It is essential to understand that a person’s standard of living is not limited to the possessions they own but also their financial preparedness in the case of an emergency. Material possessions may give you a sense of financial security and offer you a comfortable lifestyle for some time, but these things do not contribute to your standard of living in the long run. In case of a job loss or salary cut, the upkeep of such material possessions alone can put a lot of burden on your shoulders. Moreover, these things hold no real value and cannot be sold in case of an emergency to gain some money. With a lack of sufficient funds, you ultimately live a poor life with a low standard of living.
How can you avoid impulse spending and get your financial plan on track
Here are some ways to avoid impulse spending altogether so you can manage your money more efficiently:
1. Make a budget to curb your spending habits
Making a budget is the simplest and most effective way to keep your finances in check. A budget can help you plan in advance, keep tabs on your outflows, curb your spending habits, and live a wholesome and comfortable life. Contrary to popular notion, a budget does not have to be restrictive. The idea of a budget is not to force you to live frugally but to allow you to live more rationally. When you make a budget, make sure to have separate heads like savings, investments, utility expenses, etc. There is nothing wrong with buying a thing or two on impulse, but make sure that you assign a monthly limit to this. Moreover, set this limit after you have divided your salary into savings and investments, and paid all necessary bills. As long as your impulse shopping does not interfere with your other heads, you do not have much to worry about. Setting a limit on your shopping will ensure that you do not overspend.
2. Invest to secure your financial future
Investing is an important financial task that can multiply your money over time. With the right investments, you can save tax, grow your money, and secure your future. By making investing a part of your monthly routine, you can achieve two goals:
- You get to see your money grow with the power of compounding. This safeguards your future, increases financial liquidity, offers you a good standard of living, and helps in emergencies.
- You curb your impulse spending by allotting your money to more useful things such as investing. This reduces your dependence on debt, improves your state of mind and financial well-being, and helps you take charge of your money.
3. Make a target to save more to provide a financial cushion
Savings can be your savior on a rainy day. It can provide you with a financial cushion in tough situations and inculcate financial discipline. Make sure to keep a savings target each month and stick to it at all costs. This way you will always have sufficient money in case of an emergency. You will also reduce your spending since you would be left with a limited amount of money to shop with.
4. Do not use a credit card and curb overspending
As stated above, credit cards can often be misleading and make you buy products that are way out of your budget. Hence, try to carry a debit card or cash whenever you go out to shop. When you have a limited amount of money with you, the chances of overspending are automatically eliminated. Cash can be even more helpful than a debit card, as you can decide exactly how much you should be spending on a given day before you leave your home. For instance, do not carry more than a $100 bill on your trip to the mall. With a precise amount of cash in hand, you cannot be lured by expensive items and are therefore forced to stick to your budget. Moreover, since cash is a tangible asset it can help you assess how much you have spent and how much is left. This can give you a clear picture of your expenses. In the case of cards, it is easy to overlook the actual extent of your spending.
5. Delay the purchase to cut down impulse spending
It can be hard to differentiate between your needs and wants sometimes. Your needs are your necessities, such as buying a new phone because you lost your old one. However, a want is simply a desire for an item. For example, wanting to buy a new car even when you already have a car that fulfills all your needs. While understanding your wants and needs can be tough, it can help to delay the purchase by a few days to find out if the item that you wish to buy is a real necessity or not. Keep in mind that retail stores are designed to entice customers to buy things. The beautiful ambience, customer-friendly sales representatives, aesthetically placed products, etc. paint a pretty picture to convince you to buy a certain commodity. However, on most occasions, these products are of no use to you. If you find yourself at a retail store wanting to purchase a certain product, wait for a few days to a week. If you still want the item after a week, you probably have a need for it. However, if you lose interest after a week, it is a clear indication that you never needed the item in the first place. This can be a simple yet excellent way to cut down on your impulse spending habits.
6. Delete shopping apps and unsubscribe from sales newsletters
The digital world has made things a lot more convenient than before but it has also created some issues. Online shopping adds fuel to the fire when it comes to impulse shopping and makes it hard to let go of the habit. It can help to unsubscribe from newsletters from shopping websites. This will divert your attention from wanting to shop all the time. It may be advised to also delete shopping apps from your phone. Many people end up impulse shopping out of boredom and with easy access to websites on their phones. Hence, getting rid of the source can help you control your spending and ultimately stop it entirely.
To sum it up
Impulse spending is a major issue in today’s times. A lot of people resort to it from time to time and consider it a harmless indulgence to make themselves feel better. While there is nothing wrong with enjoying your money, it does help to be rational about where and how you spend it. These tips can help you keep your expenditure in check and spend on products and services that can bring you some value in return. Remember to make a budget, save, and invest to ensure a financially stable future. At the same time, pay attention to the little details like using cash, not using online shopping websites, delaying your purchase, etc.
You can also consult a financial advisor to get some help on how to manage your finances better so that you can maintain a favorable standard of living and secure your future.