Save by taming your impulsive urge to buy

Do you remember the fancy pinewood closet you bought last summer that now is only a piece of wistful memory as it is lying unpacked thoughtlessly somewhere in your backyard and withering day by day? Are you one among that usual set of buyers who often tend to purchase what they never intended to and then feel unhappy about their urge to splurge, but only when it is too late?

A lot of us just go on a shopping binge, especially when we hear of discount sales, free gifts, cash-back offers etc and often overspend on unplanned items without assessing our actual needs and without giving a little thought that such acts can burn deep holes in our pockets. Thankfully you are not alone, as unfettered spending is one of the most common human propensities – buying out of impulse and without reason.

Almost everybody knows that money is valuable and it ought to be spent wisely, but how many of us actually value it and spend the way it should be? The reason lies in behavioural finance.

More often than not, our impulsive buying behaviour leads us astray and makes us overspend relative to our actual needs. The upshot: we're left shaken and stirred with a tinge of repentance, and sometimes, heaps of debt obligations.

Track past buying pattern

The best way to identify whether you are buying impulsively is to have a look at your past purchasing pattern. This would easily reflect your spending habits, as you will find that many of the items you bought earlier were unnecessary, and worse, many of the items have not been used even once, say analysts.

"Impulsive buying behaviour is the biggest hurdle to investing. Everyone needs to set a budget and act within it. Either you control your money, or it controls you," said Steve Gregory, Managing Partner, Holborn Assets, Dubai.

There are really only two kinds of nest eggs – yours and other peoples, he says. If you continue to line the pockets of other people and retain nothing for yourself, you will enjoy your money for a short time then suffer for a long time, very likely. Put yourself at the front of the money queue, and make sure you save what you need to before you pay other people. For retirement, you need to be salting away about 15 per cent of your income, or more if you are older.

That is in addition to other savings needs such as funding university plans for children, creating a deposit for a home, or rainy day money. Keep an emergency fund of six month's expenditure, on cash deposit. Then start to invest. However, there are, of course, a few strategies to rein in impulsive buying and get one's finances straight, especially when one is struggling with credit card or personal loan debt, say experts.

"I believe people can probably overcome impulsive buying and there are strategies for doing that. I don't think it's impossible to overcome," said Darren Ashley, Managing Director, Candour Consultancy, Dubai.

Avoid misspending money

The first lesson to control needless overindulgence when it comes to shopping is to be pennywise first. That will save you a lot from being overwhelmed by monetary shocks, according to experts.

Start managing your monthly expenses and develop a good budgeting strategy to keep a tab on your spending, say experts.

The key is to set the budget and if you've got an 'x' amount of money as monthly saving after all regular expenditure on clothes, entertainment etc, it's important to keep aside a fixed amount of that extra money for unforeseen costs, said Ashley.

"The first rule is do not buy something that you cannot afford. If I've Dh100 in my pocket and want to buy something that costs Dh120, I've to postpone that purchase because I don't have that much money," said Yohannes Mazeingia, Managing Director, International Swiss Debt Management Consultancy, Dubai-based Swiss debt management consultancy.

Nowadays, almost everyone carries a credit card in his or her wallet. However, using a credit card is a good way to shop, but only if it is used in a prudent manner, say experts.

What is common among many people is that when they spot an item, which has a higher price than the money they are carrying, they are tempted to use their credit cards, falsely assuming that they can always repay the bill when they would get their salary. Overtime, such buyers lose sight of what their real disposable income is and they tend to over-rely on their credit cards, Mazeingia added.

The matter is exacerbated when people fail to pay their credit card bills during the interest-free period that, in turn, adds to their financial woes.

Having credit cards gives a false sense of ownership of money. We often fail to realise that we are borrowing more and more money by using credit cards. We fail to understand that buying through credit cards is not the same as buying through money lying in bank accounts. Rather, this is the money that people are borrowing and then counting on their salary to pay their credit card bills. This badly affects their budget, and in turn, makes them indebted. Worse, people fail to notice the high interest rates on credit card bills, said Mazeingia.

The fly in the ointment

One needs to keep track of inflation as price rise can erode your real value of money and thus eat into your purchasing power.

Experts say price increase without actual rise in your purchasing power can turn your monthly budget topsy-turvy. Although in the UAE the inflation rate has come down, but it is still high in many other countries.

In high inflation economies, the food and grocery expenditure that constituted about 20 per cent of the monthly household budget earlier can go up to almost 35 per cent or more. This can gradually erode a person's disposable income, unless the salaries have really caught up with the rising inflation.

Without realising it, the person is often preoccupied by the thought as to why his budget has gone up. Secondly, during the boom times, everything was safe and secure, for instance, employment, business etc. However, many people are still gripped by that mindset now, and it is taking time for them to come to terms with the changed realities. So there needs to be adjustments in the way they spend, said Mazeingia.

SHOP RIGHT

- Maintain a monthly budget and stick to it

- Keep a tab on the money you spend each day

- Stick to your shopping list when in a market

- Buy what you need, not what you want

- Do not overshoot your credit card limits

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