One of the biggest challenges I had to overcome during my own financial turnaround was the instinct I used when deciding whether to buy something. That instinct provided pretty good guidance during an earlier phase in my life when I had very little money to spend, but once I moved to a better paying job after graduating from college, that instinct that I had come to trust proved disastrous.
Basically, my old instinct operated like this: if I felt like I wanted something, and I felt like I had enough money to buy it, I bought it.
Back in the days when I didn’t have much money, my sense of feeling like I had enough money meant that there was either enough cash in my pocket right then or there was enough in my checking account to cover the purchase and leave just enough to cover the bills. This meant that those non-essential purchases were actually fairly rare, but when I did have the cash on hand to buy it, I could do so.
In that life situation, that policy worked fairly well. It’s good to have enough financial flexibility to treat yourself to something on occasion — there’s absolutely nothing wrong with that, and I think it’s good for most people’s mental health. We need to feel like our work builds to something.
The problem is that I had decided that my limits on that spending were defined by what was in my checking account or my pocket. Again, on a very limited income, that’s a great limitation to use. It did run the risk of overdrafting my checking account if I wasn’t careful, but I was fairly careful about it. I didn’t like cutting it too close.
Of course, using this as a limitation on your non-essential spending is disastrous once you earn more money or gain access to credit cards.
If you suddenly have a lot of money in your checking account, you can pretty much say “yes” to every desire that comes up. The same is true if you have a credit card with plenty of breathing room below the credit limit. You can just keep saying “yes,” because the answer to “Do I have money in checking or on the credit card for this?” is almost always “yes.”
As long as I kept using that old instinct for my purchases, I was going to constantly run down the road to financial ruin. That’s where that path leads. You can’t build up any sort of financial success if you’re constantly spending every dime you bring in.
One way around this problem is to spend that money for financial goals faster than you can spend it fulfilling wants. You can achieve this by making a bunch of good financial moves as soon as your paycheck comes in. You pay the bills. You put money aside for bigger goals. Then, you live off of what’s left. Alternately, you can set up a bunch of automatic transfers so that the money just drains automatically out of your checking account before you can spend it.
The problem here is that if you haven’t changed how you evaluate purchases and still just say “yes” when there are funds available, you basically can’t use credit cards and you still run the risk of overdrafting.
The real key for me was revamping how I thought about every purchasing decision. The simple equation of “Do I want it, and do I have enough cash or credit right this second to swing it?” was never going to put me on track to a better life. It was never going to lead to many of the life goals I had for myself. It was never going to lead to low-stress financial stability.
Instead, I gradually changed my purchasing thought process to something completely different.
Now, when I consider a purchase, the first thing I ask myself is do I really need this item? Is this thing I’m about to spend money on really a genuine need? Is it a basic food item or a basic household item? If it is, I buy it and don’t sweat it.
If it’s not a genuine need, I ask myself is there any strong reason why I have to buy this right now, or can it wait a little while? Unless there is a really strong case for buying it immediately, I put it back on the shelf or skip the expense.
I do keep a little bit of pocket money for pure spontaneity so that I can occasionally buy something anyway, but I don’t refresh that pocket money very often and I only allow myself to spend cash in those purely spontaneous situations. This is how I might justify buying a book or going out for coffee spontaneously with a friend.
It’s this thought process that convinces me to drive on past fast food places and drive home (or drive to a grocery store if I really need food). I essentially never have to buy fast food right now, so if I ever do so, it’s out of that “pure spontaneity” pocket money.
If I decide to put a particular purchase aside for later consideration, I add it to a list of future purchases so I have a sense of having “taken action” regarding that desire. Sometimes, I put it on my Amazon wish list. At other times, I simply add it to Evernote (and I add a dotted line to that list on the first of each month). This happens to maybe 20% of the things I actually consider buying; the other 80% are so obviously momentary impulses that I don’t even bother recording them.
Things have to stay on that list of “future purchases” for a month before I seriously consider buying them. Once every month or two, I’ll go through those two lists I keep, item by item, and evaluate everything older than a month.
Most of the time, I no longer have any real desire for that item, so I just delete it. That’s easy enough, and it takes care of 80% of the stuff on the list.
What about the remaining 20% or so? Those remaining things get more careful consideration. First, I’ll ask myself if I really need to purchase this right away, and if I don’t, I’ll usually just leave it on the list.
For those that I still really want, I’ll ask myself if a used version of this item would fit the bill. I’ll ask myself if a different item might fit the bill. I’ll start price-checking that item to see if I can get a good price on it.
The thing is, this process has already eliminated a good 95% of things I might ever consider buying. Because of that, I usually don’t feel too guilty about the remaining 5%. Those items usually fall well within my monthly hobby/entertainment budget, anyway.
So, let’s step back and look at what’s actually changed in my purchase evaluation process.
In my financially troubled days, I would simply consider if I wanted something and if I had the resources to buy it right away. That was enough.
Once I had enough resources such that I could say “yes” to the vast majority of those whims, I realized that I was spending all of my money on unnecessary stuff and I would never achieve any life goals that way. Thus, I had to make some changes.
The big change for me was that unless a purchase is actually a need, I virtually always delay it for at least a month after the initial impulse. I keep a very small amount of cash on hand for impulse purchases or expenses, but the vast majority of things get put off until later.
This includes social expenses, like going out to dinner with a friend. I almost always schedule those things, thus planning ahead for that expense. If it’s spontaneous lunch or coffee, it’s usually going to be cheap. I don’t mind going out for a fancy dinner occasionally, but that’s going to be planned and reserved.
Then, when I go through that list of delayed purchases, I realize most of them were pretty terrible ideas, which reinforces how bad it is to spend money on impulse. The things I actually buy are the ones that still seem appealing even after more than a month on that list.
The thing is, it requires some training to get your mind to react this way when you’re used to fulfilling most of your wants. For me, the thing that really made it click is going back and realizing how many of my purchases were really not that well-considered, and that requires some brutal honesty with yourself.
You can start by pulling out a credit card statement from a few months back and going through it item by item. How many of those things can you even remember? If it’s not memorable, was it really worthwhile to spend your hard-earned money on it? If you do remember it, was it really worth the money you spent on it? Couldn’t you have done something better with that cash?
You’ll probably find, as I did, that a small portion of the purchases made sense, but an awful lot didn’t. So many of the things that we desire are just impulses that are quickly forgotten. Quick stops for food or drink are almost always impulses that are quickly forgotten. An awful lot of material purchases are impulses that are quickly forgotten. Virtual items are virtually always impulses that are quickly forgotten.
Those “impulses that are quickly forgotten” are the things you need to catch because those are the things you’re buying on instinct that don’t provide any lasting value for your life. They provide this little brief blip of pleasure that vanishes extremely quickly and leaves your wallet lighter for the trouble. Find other sources for those little blips of pleasure, like quiet time reading a book or a walk in the park — whatever jazzes you up. Don’t spend money on those fleeting blips of pleasure. Save your money for things that really matter. Once you train your brain to do that, financial success becomes much, much easier.