Happy Friday! I have another post inspired by Kate, and I’d love to hear from the rest of you on this topic as well. It’s one that is the downfall of many a budget: impulse spending. Here’s what Kate writes:
I need to leave my debit card at home. I go out for one thing and I get lost in the stores. My brother used to call it getting a case of the spend-zs. My husband and I spend too much this way when we know better. I have started a spending journal, a “want” list, etc. and I have not found what works for me yet. In the 50-30-20 approach it mentions taking this money out in cash. We have done this and failed because it wasn’t realistically enough money (because 50% of our money went to our housing bill) or we just don’t know how to be that frugal yet. Also with five of us, how do I divide this money up? Aka I spend to much on my kids. I am more nervous that when I move I will not be saving a thing. I am acting in my head like I will have all this extra money but I really want to save it. I am already telling myself in my head all the things I can afford. I need to change this habit now so I am successful in the move. I am just so impressed with how you never seem to go to stores. You have the habit down so I don’t think it will be harder when your kids get older. I guess it is because I feel guilty for not having control over my money since my kids were young, I then say yes to things to please them and then I am creating the exact problem with our society today. Again my husband and I are both impulsive. Don’t get me wrong, it is on a small scale. But working on it now will help create the qualities I want to see in my kids.
I know this is a common problem, so I thought we’d tackle this one together.
The first issue I see is that although there’s a savings goal, it’s fighting a losing battle with the idea of “all the things I can afford” (the extra money is there because they opted for the lower-priced house when they moved recently). If we want to save money, we have to do it before we do anything else with our money. Otherwise, money has a way of getting used up – burning holes in our pockets.
For our own family, we have our monthly savings amounts automatically contributed to their various accounts. The money that goes into our mortgage payoff fund, our sons’ 529 plans, our emergency fund – those are all automatically funded. When we paid off our car loan in the spring, we immediately added the amount we had been paying on that loan to our mortgage payoff fund contribution each month. We had been paying a significant amount on the car in order to pay off a three year loan in just over a year, so it has made a big difference in our mortgage payoff account. Since we increased the contribution right away, we never noticed that we had “extra” money. Things continued along just as they had before we paid off the car, but now the money is going into our own account instead of to our credit union’s car loan department.
The amount that is saved will be different from one family to the next – both in terms of actual dollars and percentage of income. Some families might feel comfortable saving 10%, while others want to save 50% or more (if you’re not saving at least 10%, many experts caution that you’ll likely face difficulties in terms of being able to retire someday, so I would say that should be the minimum for which we should all be aiming. I know that a lot of families aren’t to that point yet, especially with the economic situation over the past few years. Don’t despair if you’re not saving anything right now – just focus on making the incremental changes that can get you there eventually). The important thing is to sit down and figure out what your savings goals are first, and then make it work with your money. If you try to do it the other way – budgeting your money with a plan to save the leftovers, you might find that there is very little left over to put in savings at the end of the month.
I’ve sometimes seen this concept applied to dining out. We all know that restaurant portions are huge. One approach is to have the server bring a box with the meal, and immediately put half of it in the box to take home for the next day’s lunch. The other approach is to eat until you’re full and then call for a box for whatever is leftover. Some rare people are disciplined enough to only eat half of the food on their plate, no matter how good it is. But I think that most of us would end up eating more of the meal than we intended if we have it sitting conveniently there on the plate the whole time. Wrapping it up in a take-home box before we start eating means that the leftovers are no longer there tempting us to overeat. We just have to use this same idea with money. As soon as you get paid (or before you get paid if you have an opportunity to contribute to an employer-sponsored retirement plan), take the amount that you want to save and put it into the out-of-sight, out-of-mind accounts that you use. I like to move money out of our checking account and into brokerage accounts, retirement accounts and college savings accounts right away. That way, I know exactly how much is left in our checking account for day-to-day spending and our mortgage payment. If you struggle to save and have issues with impulse spending, don’t make it easy for yourself to move the money back from your savings account to your checking account to cover “oopsies.” Most banks offer checking accounts and savings accounts that are linked, where you can move money back and forth with the click of a mouse. That’s convenient and allows easy access to your money, but it also makes it harder for the savings account to grow. We have our emergency fund at ING, and our mortgage payoff fund at Vanguard (invested in a municipal bond fund). In an emergency, we can access both of those accounts and move money back to our checking account. But it takes a couple days and requires logging into a different site. Because we don’t see those balances unless we go looking for them, we don’t think of that money as available for spending.
So we have the savings automated and funneled somewhere we can’t readily access it. What about impulse spending? Kate writes that she’s impressed with how I never go to the stores. Nothing to be impressed about – it’s just a whole lot easier to not go shopping when you’re taking two little boys everywhere you go! I wrote yesterday about how I much prefer to purchase things secondhand, and that attitude means that places like Target and the mall have zero pull for me. Goodwill, on the other hand… well, I would probably go there more often if we lived closer and/or if I didn’t have the boys with me every time I go to town. A lot of the time, it’s just easier to not go in. That definitely works in my favor in terms of not having an opportunity to buy things on impulse. In our little town, we go our for a walk several times a week, but our destination is more often than not the library. That’s a perfect place to go if you want to get out of the house, come home with something new and exciting (our boys and I all love new books), but have zero opportunity to spend money impulsively. The park is another favorite destination – again, it’s a great little adventure for us, but there’s no option to spend money while we’re there. Set yourself up for success. If you know that you always buy more than you came in for when you to to certain stores, really question whether you need to go there in the first place when you feel like stopping in. It’s a lot easier to just pass on by without going in than it is to tell yourself no when you actually see the thing that you want to buy (that you might not have even known existed prior to going into the store).
Embracing minimalism – at least a little bit – is also a good way to avoid impulse buys, if the things you tend to buy are material possessions. Check out Miss Minimalist and Becoming Minimalist for some inspiration. Browse around on some of their links. Look at the pictures of gorgeous, airy rooms with lots of clear surfaces and just a few beautiful and/or useful items on them. You just might find that your new hobby is gathering up clutter to take to donate instead of bringing home pretty little things on a whim.
If you have children, I think it’s important to include them in money discussions and be honest with them about how money is earned, what your savings goals are, and what the family budget looks like (or should look like if it’s in need of a bit of tweaking). Get your kids in the habit of saving money from a young age, and being responsible for their own spending money. Don’t be afraid to tell them “we can’t afford that.” There’s nothing wrong with that. There is something wrong with trying to provide every material thing that our kids want at the expense of our family’s financial future. None of us want to raise spoiled, entitled kids, and yet it’s easy for that to start to creep in if we always say yes to the things they want. Being honest with them about the family’s financial situation is a great way to raise kids who are realistic about money and less likely to be consumed with a desire for piles of possessions. It also helps to make kids feel like important members of the family team if they are not shielded from the family finances.
Using cash is a system that works well for a lot of people, although as Kate mentioned, you have to be realistic with your amounts. It helps to know where you’re starting, so keep track of all your spending for a month so that you can see how much you’re currently spending. Then cut it to a reasonable level that is in line with your goals, and give yourself that amount of cash. Personally, we rarely use cash, and instead put all of our purchases on our credit card in order to get the credit card rewards and see an itemized total of our spending each month. But we never spend more than we can pay off in full each month. If you struggle with this, I would say that a cash system (or debit card that declines rather than goes to overdraft protection) is far better than credit. Do what works for you, but if you’re using credit, don’t think of it as a payment plan. Think of it as a convenient way to pay for everything all at once at the end of the billing cycle each month, and then make sure you stick to that.
What other ideas do you have? I know that impulse spending is a common problem, and I’m sure a lot of you have tips and tricks that have worked to help you curb impulse spending habits. Please share!