There is no denying that buying new things for yourself or others feels great…kind of like a therapy…
However, the true meaning of therapy is ongoing benefit and while impulse purchases make you feel good at the time, they can make you feel worse later. This is often because when you make a purchase on impulse you are thinking about fulfilling an immediate need, rather than thinking about how practical the item is, or whether you can really afford it. As a result you can end up spending money on an impulse which could have been put to better use elsewhere, or you charge the impulse buy to your credit card when you can’t afford to repay it and as a result you pay for the purchase many times over in interest charges.
How to Spot an Impulse Buy
The first step to curbing a behaviour is recognising it, and impulse buying is much more than just those people who sit on the couch ordering from infomercials. Impulse buys can also catch you out:
At the supermarket. Supermarkets are designed to encourage you to buy on impulse, that is why the milk is always at the back of the store. You can also save hundreds of dollars every year on groceries simply by making a list before you leave home, and sticking to that list once at the supermarket. You avoid filling your trolley with ‘I think we need this’ and you can exercise discipline by buying only from your list, not from something which is on special but which will go off in the cupboard waiting for you to use it.
At a sale. Clothing, shoes and other nonessential items are easy to pick up on impulse because there always seems to be a sale. However, even if you really do need a new pair of jeans or a suit for work, if you buy in impulse without considering if you can afford it, you can pay for it in the long run.
For the kids. Wanting to spoil your kids is another easy way to get into impulse buys because you pick up clothes or toys or lollies when you’re on a shopping mission for something else without considering if the purchase is in the budget.
As a romantic impulse. Finding the opportunity to spend time with your partner can be hard so if you decide on an impulse to go on a weekend away you may think you’re doing everything right. Unfortunately one of the biggest sources of tension in relationships is money, and if your romantic impulse buy costs more in interest charges or late bill payments down the track, you could be causing more problems.
How to Avoid Impulse Purchases
Sometimes it is nice to be impulsive but there is a difference between being impulsive and making impulse purchases. Impulse purchases are not in the budget, and are often charged to the credit card. Being impulsive shouldn’t have negative ramifications, so you need to know how to avoid making costly impulse purchases.
Luckily avoiding the negative side of impulse purchases can be avoided with a few simple rules:
Don’t keep your credit card in your wallet. You’ll be less likely to deem a sale as an emergency if you don’t have any way to pay for the purchase. If you choose a credit card as your emergency fund then it will only work if you keep it for emergencies only, otherwise you are just accumulating unnecessary credit card debt.
Have a non-linked savings account. Keep your savings in an account you can’t access with your ATM, EFTPOS card or debit card. Ideally an online savings account held by a different institution to the one which holds your transaction accounts will require several days to transfer funds out, restricting your access to fund an impulse.
Make a budget. If you have a detailed budget you know how much money is coming in and going out, you have allocated funds to your savings plan and you know how much is left over for incidental spending. This turns an impulse buy into a one off expense you can afford, because there is room in the budget.
Cost vs use. Use this method at the point of sale to determine how much you really need the item. Divide the cost by the number of times you expect to use the item, and then consider whether the cost per use of the item is reasonable. This forces you to stop and think about your purchase and whether you really need it.
Plan an impulse. You don’t have to give up on impulsive indulgences, just plan for them. Plan a shopping trip once a month with a budget in mind, plan to buy the kids one new toy a month or plan a movie night at home where you can indulge in some snacks and chocolates which were once expensive impulse buys at the supermarket. And of course don’t forget to plan for your romantic impulsive indulgences.
Alban is personal finance writer at Home Loan Finder, he helps people to choose the best investment home loan