A candy bar here, a takeout coffee there. Dinner with friends one night and a few extra items in your grocery cart the next day. These impulsive spending habits could be wasting more money than you think.
If you find it hard to say “no” to spontaneous spending, follow this step-by-step guide.
Step #1: Understand Your Budget
Your first order of business is to track your cashflow. You need to know how much money you bring in each month, and how much you spend.
Without a budget, it can be hard to picture how one purchase can throw off your budget, which can lead you to spend more than you should.
Tracking your cashflow will help you understand what would happen if you added an expense to your budget. If its addition would make it hard to pay bills, savings, or other responsibilities, it’s not a good idea.
Step #2: Don’t Take out a Loan
Credit can overinflate your budget, making you think you have more money to spend. Unfortunately, all credit comes with a cost.
Whether you use a line of credit or an online personal loan, you’ll have to pay back your purchase plus interest and finance charges. So not only are you spending more than you should on the item itself, but you’re also adding to your costs.
Avoiding this double whammy becomes easier when you understand how credit fits into your finances.
The lending experts at MoneyKey recommend online loans for emergencies only. And no, snagging an air fryer at half price isn’t an emergency, despite the cost savings on something you want. Emergencies are urgent, unexpected expenses you must make to protect your belongings or health — like an unplanned trip to the auto shop.
A credit card is a little different from an online loan, as you may use it for everyday shopping to take advantage of cashback rewards. Treat your credit card like cash to avoid over dipping. Use your budget to approve essential purchases you can afford.
Step #3: Evaluate Your Purchase
Another way to avoid misusing credit cards and online loans is by understanding why you want to make the purchase.
Is it a necessity or want? If your next shopping trip includes non-essential expenses, consider them carefully.
You don’t have to eliminate all fun spending. In fact, this austere habit can unintentionally make you spend even more. However, you should spend this money with discretion, limiting how often you eat out or go shopping.
Step #4: Try to Cut Costs
You may be able to fit more fun spending into your budget when you get crafty. You might be able to reduce how much you spend by employing one or all of the following strategies:
- Using coupons and rebate apps.
- Waiting for the item to go on sale.
- Shopping around between retailers to find the lowest price.
- Redeeming your credit card rewards.
- Considering renting instead of buying.
Step #5: Delay Big Purchases
If you go through all the previous steps and still feel like you need to buy something, take a step back and sleep on it. Give yourself a couple of days to think about what you’re buying and why you need it. Consider this a thought exercise where you have to convince an unbiased jury that you should spend your money. Can you make a persuasive argument to an outsider?
Removing yourself out of the situation can help you resist the temptation to overspend. This exercise will also make you assess your own justifications for spending. After a few days, these reasons may not be as persuasive as you once thought.
The average person flushes $314 down the drain on impulse purchases. You could save that and more by following these steps every time you shop.
