Did you see the Your Money in a Minute segment on this week’s show? Glen James, retired financial adviser and founder of My Millennial Money outlined his top tips to stop overspending and they’re good ones. Watch this quick segment and read on to find out more.
1. Set timeframes for different money thresholds
As James points out, the bigger the price of an item, the more time you need between purchases. We do this automatically when making a house purchase, which takes many months and even years of planning. However, most of us don’t set timeframes for smaller purchases, even those that are only a few hundred dollars. He suggests setting different timeframes for different money thresholds in your life.
This may mean that you decide that all purchases under $100 can be automatic, but purchases over this amount will require a conscious decision and a plan. You might also decide that you can only make a set amount of purchases over $100 each week or month, or commit to leaving at least one week or longer between larger buys. See below for more on this.
2. Cap spending on unplanned purchases
Setting a maximum amount of money you can spend on unplanned day-to-day items is an effective way to stop overspending. This is a particularly good approach if you’re trying to break an online shopping habit.
James suggests the ‘sleep on it’ approach to slow you down. So, decide what your cap is going to be (say, $100) and then commit to leaving it at least 24 hours before you make any purchases over this amount. It’s amazing how a good night’s sleep can move things from the ‘need’ shopping basket and onto the ‘want’ wishlist.
Other strategies that can help you break the unplanned purchases habit include:
- Blocking frequent-offender websites by using tools like LeechBlock – this way, you can’t even access the sites that tempt you the most.
- Removing any saved credit card information – forcing yourself to get up, find your wallet and input your details might be the only barrier you need.
- Unsubscribing from tempting newsletters – if you can’t see the latest and greatest, you won’t miss owning them.
- Reminding yourself of your long-term plans – making short-term sacrifices is far easier when the future you want to live in is clear in your mind.
More tips here: 5 key financial habits of highly effective money savers
3. Be clear on wants and needs
It can actually be quite tricky to determine in the moment whether a purchase is a want or a need. That’s why introducing a ‘pause’ before you buy should be mandatory. The ‘sleep on it’ habit James outlined above is one way to add in a good-size pause to get your priorities in order. Other ways to pause include:
Set a timer for a set period of time between wanting and purchasing – this could be any amount of time from an hour to 24 hours. The key thing is that you pause to consider your options before you part with your cash.
If the discipline of setting a timer eludes you, try breaking the circuit by physically removing yourself from the shopping environment. Go for a quick walk around the block, head into another room and make a phone call, or leave the store and go get a coffee.
As for deciding what a want is and what a need is, only you can really know the difference. Just bear in mind that what we ‘need’ is generally anything that helps us survive and thrive. A coat to keep us warm on a freezing day is a yes. A second coat that means the first perfectly good coat no longer gets used? That’s probably a no. Still a nice coat and yours to buy if you really want it, but just remember that it means a fair whack of money spends a lot of time in your wardrobe as a result.
This article contains general information only. It should not be relied on as finance or tax advice. You should obtain specific, independent professional advice from a registered tax agent or financial adviser in relation to your particular circumstances and issues.