Shopping Smart & Spending Wisely
‘Tis the season for giving thanks, eating way too much, and big-buck spending. Gift giving may be traditional for this time of year, but what about all of the things we spend money on that we don’t really need? Retailers are quite crafty about how they position merchandise and offer specials designed to lure consumers into making spontaneous purchases.
So what can we do to stay focused in our spending this holiday season? In a blog post by Dayana Yochim, 5 Ways to Stop Buying Stupid Stuff, some great advice is presented.
Ignore the source
Every dollar is worth a dollar, no matter if it comes from an ATM, a great aunt, or the laundry hamper. Yet people show more restraint with earned funds than they do with “found money” — things like tax refunds, work bonuses, and inheritances.
Sweat the big stuff …
Oddly, we’re more thoughtful with large-sum unexpected windfalls than we are with smaller amounts. However, many people have a blind spot when it comes to spending earned money on big-ticket items.
Consider the biggest slices of your spending pie and practice cost consciousness where it counts: vacations, transportation, holiday and home expenses, cute shoes. That said, don’t dismiss outright those seemingly small money decisions. A few percentage points of interest on your credit card or checking account or paying a few bucks more per stock trade may not sound like much, but they add up.
Comparison-shop with skepticism
On the lookout for the rock-bottom price? Put on your blinders. In an oft-cited experiment by two Berkeley business school professors, shoppers given the choice between two microwaves — a low-end and mid-range option — split nearly equally down the middle, with 43% choosing the more expensive oven. But when a pricier alternative was added to the mix, the majority of shoppers (60%) decided the mid-range microwave was the best deal.
Academics call this “extremeness aversion” — wary of alternatives at both ends of the price spectrum, even the bargain hunters decide to trade up. The resulting budget creep occurs on everything from cars to cameras to coffee.
To avoid this Jedi money mind trick, focus: Weigh the merits of each product independently. Pick your must-have features and a target price range. Compare like with like — and erase from your mind the alternatives that don’t fit your criteria.
Keep separate tabs
“What’s another $[fill in the blank] when I’m already spending $[fill in the blank]?” Contractors, car salesmen, and electronics store clerks bank on this kind of faulty thinking. In the context of a larger purchase, somehow $300 cup holders and $3,000 Corian countertops start to make sense.
Don’t let upgrades and add-ons pad your tab. Instead, consider each option separately and ask yourself if you’d pay $[fill in the blank] were you shopping solely for that item.
Leave home without your credit card
It’s easy — too easy — to pay with plastic. That’s why the price of credit card convenience is higher than that of cash. Yes, even if you pay your credit card bill in full every month.
Studies show that people spend more — and more stupidly — when no actual cash changes hands. We succumb to impulse buys (an estimated 59% of grocery store purchases are not planned) and even tip more at restaurants when we put the tab on plastic.
Pay in cash only and you’ll likely see a dip in your daily expenditures. Imagine the results after an entire year. Now that’s a rewards program Visa and MasterCard can’t match.
The $480-a-month bottom line
So how much is it worth to test-drive one of these five tips for the next four weeks? Well, I answered that in bold-faced type a half-inch up. Here’s how I came up with it: Try an all-cash diet for one week, and you could shave 60% (the difference between the average debit/cash versus credit card purchase) off your grocery bill alone. That’s $480 a month for the average family of three.
To read this excellent article in its entirety click here.
