You've lost before you even enter the arena
Sabotaged by Impulse Buys
by Joel Fink
So, you've put together a budget. That's great! But, why do we so often end up overspending our budget?
Maurie Backman recently wrote an article for The Motley Fool entitled "This Money Habit is Hurting 5 out of 6 Americans." In her article, she talks about the primary culprit preventing people from meeting their budgets.
She notes that according to a Creditcards.com survey, 4 out of 5 Americans admit to making significant impulse purchases. In the survey, 54% admitted to making an impulse purchase of $100 or more and 20% admitted to making an impulse purchase of over $1,000. As you might expect, higher income earners made larger impulse buys, which helps explain why people have difficulty meeting their budget, even as income rises.
What makes us so susceptible to impulse buying?
Ian Zimmerman, PhD, wrote an article for Psychology Today called "What Motivates Impulse Buying?". He talks about a number of factors that contribute to a person's impulse buying behavior.
- Impulse buyers tend to be more social, status conscious, and image concerned.
- Impulse buyers tend to experience more anxiety and difficulty controlling emotions.
- Impulse buyers tend to experience less happiness and make purchases to improve their mood.
- Impulse buyers are less likely to consider the consequences of their spending.
- Impulse buyers often feel a strong connection to a product through their own direct interaction with the product or when they see someone else using and enjoying the product ("vicarious ownership")
So what actions can we take to combat the allure of impulse purchases?
Maurie Backman recommends that you leave your credit cards at home. She notes that the Creditcards.com survey found that 79% of impulse buys occurred in stores where you can physically touch the product (i.e., vicarious ownership). She also notes that a Bankrate.com study found that people spend 50% more when they use credit cards compared to those who use cash.
She also recommends that when you shop online, you search for the item by a specific name, rather than category. A study by User Interface Engineering found that consumers were three times more likely to purchase another item in addition to the original item for which they were searching if they searched by category (e.g., flat screen TV) as opposed to a specific product (e.g., Vizio 48" HDTV model E48).
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While Dr. Zimmerman doesn't give specific recommendations for combatting impulse buying, he does provide insight into the underlying causes. Much of the behavior is centered on anxiety or unhappiness and the pleasure that we feel when we make a purchase.
He reminds us that everyone behaves impulsively now and then, and that modest cases of impulse buying can be harmless. However, extreme cases of impulse buying can lead to debt and unhappiness.
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In extreme cases, like with depression, you may need to seek qualified professional help. In more moderate cases, you can take steps to combat the impulse buying motivations.
When you are feeling stress or unhappiness, look for outlets (other than shopping) like exercise, volunteering, calling a friend, taking a walk, or going to the library.
Try not to focus on the new product that you want. Try focusing on what you already own. Don't compare yourself to others based on the things that you own. You may think that they have nicer "things," but they may also have incurred higher debt to get those things.
Staying on budget is difficult for most everyone. Taking steps to reduce impulse buys and understanding the motivations that are driving impulse purchases can help you finally start winning the budget battle.
Reviewed April 2018
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Joel Fink is a retired CPA and financial services executive living in Dallas, Texas. He enjoys writing articles that help real people with simple ideas to manage their money and improve their lives.
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