How to Avoid Impulse Spending

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Late summer means vacationing to tropical locales, brunching with friends under the noonday sun, and shopping for the impending return to school. With a long list of potential expenses already pulling on your wallet, it’s easy to end up overspending on items which were never on your list in the first place. Today, we’ll be exploring what impulse spending is, how you’re susceptible, and why it could be hurting you in the long run. Finally, we’ll go over a handful of ways you can curb impulse spending and keep those extra dollars for yourself!
 
What is Impulse Spending
 
We’ve all been there. You’re standing near the cash register, ready to checkout, and just there—a well-placed, beautifully displayed cache of candy. You decide to grab a chocolate because you deserve a treat and it’s only two dollars. What’s the big deal? 
 
That’s an impulse purchase. 
 
An impulse purchase, or impulse buy, is any purchase you weren’t planning to make. Some can be small, like the example we just went through. Others can be quite large. If you’ve ever walked into a big-box store and felt the urge to drop seven-thousand dollars on a hot tub or trampoline—that’s an impulse. We cannot help most of our impulses; they’re subliminal and inspired by a range of factors outside of our control. However, most of us can control whether we follow through on the impulse to buy something we know we don’t need. We’ll provide you with the tips you need to resist impulse spending. Keep reading!
 
Why Reigning in Impulse Spending Is Important
 
On average, Americans spend $2,196 on impulse buys each year. Yes, those chocolates and trampolines do add up after a while. Imagine if you put the same amount towards your thirty-year mortgage? You’d shave off the grand total of your house by over sixty-five thousand dollars. About ninety percent of Americans say they indulge in impulse spending, with nineteen percent saying they spent more than one-hundred dollars on their last impulse purchase. Amazingly, nearly sixty percent of all purchases are unplanned. In 2020, the top five impulse buys included cleaning supplies, hand sanitizer, toilet paper, hand soap, and canned. These impulse purchases can tell us a lot about ourselves as a society and what we value, but they can also reveal our fears and deep-seated insecurities. We’ll discuss the reasons why we impulse buy in-depth later.
 
Right now, we’ll focus on how impulse spending might be negatively affecting your life. Impulse spending might be holding you back from reaching your long term financial goals. Do you look around at the end of the month wondering where all of your money went? Chances are your money is going toward unplanned and unregulated expenses. Furthermore, impulse spending can be a major point of contention between you and your partner. We all want to be able to trust our significant other with shared money and impulse spending may be degrading that bond of trust. Finally, impulse buying is often a response to feelings of unhappiness and lack within ourselves. As we know, most purchases won’t have a lasting positive impact on your emotional state, but will have a lasting negative impact on your pockets. 
 
The Psychology Behind Impulse Spending
 
Who is most likely to make purchases impulsively? Men might believe women are, but the opposite is actually true. Men are more likely than women to make an impulse buy, with the percentage of men who regularly make impulse purchases being 26% and the percentage of women who regularly make impulse purchases being 16%. Research suggests extroverted people, as well, are more likely to buy impulsively. This may be because the personality factors linked to impulse buying—openness, conscientiousness, and neuroticism—also correlate to extroversion.  People who are highly susceptible to stress will often use impulse buying to manage their stress levels. Distracted or tired people have less mental capacity to make good choices, therefore they are also more likely to buy impulsively. On the whole, people who feel confident, complete, and fulfilled by their lives are less likely to make impulse purchases. 
 
Emotions shouldn’t play a part in how we spend our money, but they often do. There are four emotional factors which contribute to impulse purchasing. They are:

1. Immediate Gratification 

 
This is when purchases are used as a pick-me-up on a stressful day. If you’ve been working hard or are exceptionally bored, it's easy to justify a small purchase which will bring you joy and excitement for a brief period of time. These purchases are often food-based (e.x. Fast food, candy), entertainment-based (ex. a movie ticket, a book), or appearance-based (e.x. cosmetics, clothes). 

1. Loss Aversion 

 
This is when purchases are made out of a fear of missing out on something good. Perhaps you’ve noticed your friends are frequenting a once-a-year sale or you received a newsletter in your inbox detailing a twenty-four-hour sale. You might justify this purchase by saying it’s a limited time offer and you’re saving money. More than half of shoppers impulse buy because of a sale. The truth is, marketers understand our very human desire to take advantage of opportunities we fear won’t come around again. 

1. Stockpiling

 
This is when purchases are the result of a fear of running out of a supply of something. In 2020, we saw people rush to stores in droves to buy toilet paper out of a fear there wouldn’t be any (for some reason). Well, there were toilet paper shortages in some places—because of this fear-based activity. Alternatively, you might stockpile more of your favorite shampoo than you technically need because another brand of shampoo once discontinued your go-to. Again, this is emotion-based spending. 

1. Biased Evaluation of Use

 
This is when we overestimate how much use we’ll get out of a product in its lifetime. We might justify a clothing purchase by saying how much we’ll wear the item, or a kitchenware purchase by how much we’ll use it to cook. The truth is, if we look in our closets and kitchens, there are plenty of clothes and gadgets we don’t ever use. Regardless of how much we liked them when we first bought them. 
 
Another factor which contributes to how we spend our money, which is a little harder to pin down or solve, is how we were raised. The state of our household finances when we were growing up can play a large role in how we choose to spend our money as adults. If your parents spent money when they were feeling low or fought excessively over small purchases, you might be inherently emotionally predisposed to impulse buying. Being aware of how we’ve been influenced can go a long way towards altering our conditioned behavior. 
 
Advertisers are knowledgeable about psychological weaknesses and use these weaknesses to make sales. In advertising, these psychological weaknesses are called pain points. Be conscious of how ads and promotions might be appealing to your particular pain points to avoid falling into any marketing traps. 
 
Methods for Avoiding Impulse Spending
 
There are a ton of ways to avoid impulse spending and you really need to find the one which works best for you. Most financial institutions will recommend making a budget and simply sticking to your budget. Obviously, anything which hasn’t been factored into your budget will not be purchased, thus eliminating impulse spending. However, it's not always this simple. You have to be realistic when creating a budget. If you know you like the occasional cup of coffee in the morning or a night out on the town with friends, you shouldn’t try to cut these things out. Instead, you should plan for these expenses. Budget five or six coffees and one or two nights out into your monthly budget. This removes the impulse from the purchase, rendering you guilt-free. 
 
Beyond a budget, you have to determine what’s important to you in the long term so you can stop prioritizing short term gratification. What are your financial goals? How long have you estimated before you reach them? The next step is to take stock of your current finances and see how much of your money is being spent impulsively. Recheck the numbers and see how much faster you would reach your monetary goals if you reallocated your impulse buy expenditure towards them? The answer may give you the motivation you need to save. 
 
As we discussed, our emotional state can drive us to make decisions we wouldn’t otherwise make. Ever heard the saying, “don’t go grocery shopping when you’re hungry”? Well, this applies in all scenarios. You shouldn’t shop when you’re overwhelmed, tired, stressed, or hungry. For the same reason, you shouldn’t shop later at night. Potentially sleepy from a large meal and few glasses of wine, your critical thinking skills and inhibitions are lowered. It’s a recipe for disaster. 
 
The tried-and-true method for cutting down on impulse spending is to wait before making a purchase. Chances are, within a week or even a day, the impulse will have gone and you’ll be left wondering why you wanted the item in the first place. In this vein, don’t allow timed deals to force your hand. A clock counting down the minutes until the end of the 50% Off BOGO Sale might induce a feeling of low-grade anxiety, but just remind yourself the sale will be back around eventually and you can wait. 
 
It’s recommended you bring cash to the store and only the amount you need. This can curb overspending. A study done by Bankrate.com found that people who used charge cards at restaurants spent fifty-percent more on average than those who used cash. This may be because of the physical element of holding bills in our hands and being unwilling to part with the feeling.
 
Another tip is to take stock of what you already own. You’ll avoid buying things you already have that you forgot about and may come to develop a deeper appreciation for what you currently own. 
 
A great piece of advice is translating the cost of an item into time. For example, if you make $14 an hour after tax and a dress you want costs $98, then the dress costs seven hours’ worth of work. Is it worth it, though? This added bit of mental work may be enough to prevent you splurging in the moment. 
 
The last two tips are small but effective. If you’re shopping online, we recommend you read reviews and put everything you want in the cart. Pay attention to the bad reviews especially. They may be enough to turn you off of a purchase. The effect of putting everything into the shopping cart and then leaving the site is a feeling of low-grade satisfaction. You’ve picked out everything you want to buy, which gives your brain a small jolt of dopamine, and might be all you really needed. 
 
 
We hope you’ll utilize these tips to avoid impulse spending and reach your financial goals. For more information and advice on saving, spending, taxes and more—make sure you return to the Hoods Tax & Accounting blog! We’re here to help in any way we can! If you have any questions or are interested in a consultation, we are providing meetings over Zoom. For any other assistance, please reach out by calling or emailing! Thank you for reading. Until next time! 

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