I’m an aspiring frugal minimalist, working towards Financial Independence. Given that, saving should be second nature and easy for me, right? Well normally we are are pretty good and put money away like clockwork, but this week was a reality check as my monthly budget went up in flames. The budget collapse wasn’t due to any unforeseen disaster, medical emergency, or car problems. I simply overspent and purchased what could be classified as an unnecessary, luxury item.
So what went wrong and how do I avoid overspending in the future?
Victim of advertising or was this something I really, really needed?
It’s estimated that the average person is exposed to approximately 4,000 to 10,000 ads each day. On top of that is the marketing we self-select to introduce into our lives when we sign up for emails, discounts, sale notifications and newsletters from shops, products, services and brands we love.
It was the latter that got me this time. A weekly newsletter from B&H photography landed in my inbox announcing a huge sale on Sony cameras. As a bit of context, I have been thinking about upgrading my camera for a while, but for some reason this email sparked something in me and I couldn’t get the “deal” out of my head. It triggered a week of research and comparisons, where I confirmed for myself that yes, it was a really good discount and yes, it was a great camera. The question I failed to ask and answer, was whether I really needed it in the first place. I was on a mission to convince myself I needed the new camera and I’m pretty good at rationalizing things when I want to.
Like any good piece of marketing collateral, the sale offer had an expiry date, creating a sense of urgency and scarcity. I purchased the camera with two hours to spare before the sale (supposedly) finished, feeling happy and guilty in equal measures.
Relying on will power and self-discipline clearly failed me in this instance. So what steps could I have taken to avoid overspending?
Common advice on how to avoid overspending and why none of these tips helped me!
I’m not a compulsive buyer, but I do occasionally overspend, negating some of the benefits of otherwise trying to live frugally.
Like any sensible person with a question, I turned to Google for the answer as to how I could have avoided blowing the budget this month by not overspending. Advice I found was universally along the following lines:
- Sleep on it – I think it is actually pretty good advice which normally works. This approach definitely stops impulse buying by creating a gap between stimulus and response. In this case though, I spent almost a week agonizing over the camera purchase, so it clearly didn’t work
- Focus on your debt or savings goal – Again good advice, but how practical is it in practice? We don’t have debt beyond our mortgage and the Financial Independence goal is a few years off yet, so in this instance wasn’t top of mind. If I was a fully rational consumer, clearly I made the wrong decision. Not sure if there is a way to keep the long term always in focus. Any advice on this is welcome!
- Leave your credit / debit card at home and just carry cash – I guess the theory is that paying cash makes any transaction feel more real. As more and more shopping is done online, this tip feels somewhat obsolete. While I have the occasional overspending issue, we don’t have a debt problem. All our spending is funneled through credit cards to maximize reward points and we always pay off the balance. Yet again, I don’t think this bit of advice would have stopped me buying the camera.
- Avoid temptation and don’t go shopping – I wasn’t actively looking or shopping for the camera. Unfortunately the temptation arrived in my inbox. This advice feels as useful as someone simply telling me “not to overspend”. Not much help!
- Track everything you spend – Yes, we do this already. This week we just have to record a bigger number! I’m being flippant, but the reality is we had the money and I simply made the choice to spend rather than save it. Recording your expenses is great advice though and does normally make me more conscious about how we are tracking to our budget.
So all in all, I’m not sure any of the above tips would have stopped me hitting that “Buy Now” button.
Establishing better systems to save and avoid temptation
So I’ve proven to myself that self-discipline is in limited supply. Are there ways to structure or systemize my behavior and decision making, so that I stick to the budget more consistently? I thought I would try the following going forward:
- Unsubscribe to emails from companies selling products and services that I know will tempt me – Unless I move to the wilderness, away from the Internet and civilization, there will always be external stimuli encouraging me to buy, buy, buy. What I can avoid, though, is inviting them into my inbox. Rather than relying on will power to reject every email with exclusive, limited time only sales, it feels easier to simply avoid the temptation in the first place.
- Force myself to consider the opportunity cost of the purchase – Like any good consumer I can self-rationalize my spending when I want to. I think this is harder to do though when the true cost is properly considered. The reality is that each dollar spent, could have been saved and invested. I might just spending $100 but will actually be giving away thousands. Another useful framework for thinking about opportunity cost is how much time at work did it cost to afford a particular item. How many more annoying and pointless meetings will I need to sit through as a result?
- Rather than sleeping on it for 24 hours, try holding out for 30 days before making any major purchases – I do believe putting time between want and purchase is useful. I don’t think 24 hours is enough of a gap, at least for me. What I’m thinking of implementing is a sliding scale rule based on materiality. Basically the bigger the cost, the longer the gap. 30 days is a bit random but feels like a good starting point for anything over $1,000. Delaying gratification should hopefully ensure it’s a good, well-considered decision.
- Re-look at the budget and decide whether our current savings rate is realistic – Maybe the occasional overspend is like a release valve opening up when the pressure builds too much? Maybe we are trying to be too frugal and not allowing ourselves a bit of “fun” money? Perhaps by letting myself spend a bit more on the small stuff, I’ll avoid “rewarding” myself with big ticket purchases. Even if this slows down our goal of Financial Independence, perhaps the journey there will be more sustainable and enjoyable.
- Things not on “The List” shouldn’t be purchased at all – The thinking behind this is that if we haven’t given a particular item any previous consideration, why do I suddenly need to buy it? In all likelihood it’s an impulse buy and should be avoided.
- Experiment with no-spend months – Again another variation on the theme of delaying gratification. I going to try this on alternate months as a personal challenge and see how it works.
- Make it difficult to get money back from savings – As noted previously we are pretty good savers. The problem is that it’s all too easy to pull money out of those savings when needed. Sometimes it just becomes a money swapping exercise, shifting money from one account to another. We need to look into ways that saving becomes a one way process.
What have you found successful in combating the urge to spend?
Have you faced similar challenges? What are some of the tricks you use to make sure that you save rather than spend? How do you stop going off the rails and instead stay true to your long term goals?
Thanks for reading
Mr Simple Life