For me, and for a lot of other people, shopping can be a very impulsive exercise. When something you want is on your radar, you're often pulled very strongly toward making that purchase. Your mind comes up with tons of reasons why it makes sense and, beyond those reasons, there's still a strong nameless desire to acquire the item.
Perhaps the best financial move I've ever made in my life is to get that sense of impulse under control. That's not to say that occasional spontaneity is bad - it's not and it can be quite fun - but that routine impulsiveness with one's money leads directly to financial ruin.
So, how did I get this sense of impulsiveness when it comes to money under control? For me, the most useful strategy was to mentally adopt a routine where I strongly question every single purchase that I make. If I'm considering spending money on something that isn't very clearly a need (like very basic food staples) or an already-considered routine buy (like the type of hand soap that I buy whenever we need a refill), I question it.
I run that potential purchase through a minefield of questions. Many of these questions require at least a little bit of homework in terms of shopping around or evaluating my needs or figuring out my financial state. If a product survives these questions, it becomes much more likely that I'm going to buy it.
But, again, what about spontaneity? Each month, I budget a small amount for myself to spend on whatever I'd like. I don't have to ask these questions about purchases that come from that money. However, because I use these questions so often with other purchases of my life, I often still use these with my "fun" money, even though I don't have to. Why? These questions end up improving the quality of my spending decisions drastically. I end up with a lot fewer wasteful expenses and a lot more good buys and meaningful purchases.
Here are the 10 questions I ask myself about almost every purchase.
Is there a place where I could get this same exact item for less money?
Not all retailers offer the same exact price for a specific item. Am I sure that this retailer is offering me the best price for this item that I want? Have I actually done some homework to find out if the item is cheaper elsewhere?
At the very, very least, you should cross-check the price of the item you're looking at against Amazon. That's just the starting point, however; you should also discover discount specialty retailers and use them as a price comparison for the type of item you're looking at, such as Newegg for computer parts.
Paying less for the same item - or, at the very least, being aware of the option to pay less - directly saves you money and helps you to make a smarter purchase.
Note that this doesn't always mean I walk away and go for the lowest possible price. Sometimes, I'll pay more in order to support a local business or because that business offers other free services that I don't want to go away. A great example of this is my local game store: I can often get lower prices on board games online, but I sometimes buy from the local store anyway because they provide a ton of free table space for games and for group meetings.
Do I need this item?
Will my life truly be worse if I don't have this item?
For me, this question is a check on reality because, truthfully, my life won't get worse if I go without almost any purchase that I make in a given year outside of very, very essential staples.
I don't need a cell phone. I don't need a gourmet food item. I don't need a particular appliance. Those are wants, not needs.
Understanding that I don't actually need this item that I desire and that my life won't actually be negatively affected if I don't buy it often makes a potential purchase seem a lot less urgent, and when it seems less urgent, it becomes less likely that you'll pull the trigger.
Have I budgeted for this item that I want?
In other words, will buying this item increase my credit card debt or cause me to experience some other kind of financial failure (like an overdraft or a late bill or a smaller contribution to my retirement savings or not enough money to shop normally for groceries)?
If you don't have enough clear space in your budget to support such a purchase, then you shouldn't be making such a purchase. If you go ahead with that purchase, you're going to be putting a surprising amount of strain on other areas of your life, strain that you won't want to deal with in the coming weeks and months.
Credit card balances? Overdrafts? Difficulty buying the groceries or paying the bills? Missing out on savings? None of those are good things and none of them are worth this purchase.
Could I buy this used?
Many of the things that a person might consider buying can be found used at a great price if you shop around. Things like automobiles, books, video games, sports equipment, clothing, children's toys, and so on can easily be found used if you look at secondhand shops, used game stores, secondhand sporting goods stores, Craigslist, and so forth.
Buying a used item significantly cuts back on the sticker price for you and often turns that item into a wonderful "bang for the buck" purchase, especially considering how many used items are practically new when you look closely at them.
If an item can be purchased used, start by looking at the used options before you ever look at places to buy those items new. Start your video game purchases at the secondhand game store. Start your book purchase at the used bookstore. Start your clothing shopping at the consignment shop.
Do I need to own it, or could I borrow it from a friend or from the library (or elsewhere)?
This simple strategy has kept me from buying piles of books, many audiobooks, many one-time pieces of equipment, and countless other odds and ends over the years.
The truth is that between the library, the rental service at the local hardware store, and friendly neighbors and family members and friends, I've been able to skip over purchasing many items over the past few years. I just ask to borrow them instead.
If you are interested in a book or an audio recording, check the library first. If you're interested in a piece of small equipment, consider your neighbors and friends first. If you're thinking about a bigger piece of equipment, look at renting it first. Don't immediately turn to buying it.
Will this improve my life enough to be worth the cost?
It's really easy to get caught up in the benefits of the latest smartphone or a particular grooming item or something you might really want for your favorite hobby. You latch onto the benefits of that item and you can't help but see how great it is.
When you do that, you're often ignoring how much it costs - and that cost is often high. Is it really providing that much benefit to your life if the cost is that high?
I like to translate the cost of items into the number of hours I have to work to pay for that item. I figure out my "true hourly wage" by dividing my annual salary by my working hours, but before I do that I subtract out costs like taxes, equipment, travel expenses, and so on, and I add in hours for things like sending emails, meeting with people, negotiating contracts, and so on. My actual "true" hourly wage is much lower than I might have initially thought, so the cost of an item in terms of hours of my life sacrificed often seems really painful. It's not worth it most of the time, as I'd rather reclaim those hours by saving that money for retirement.
Will a store brand suffice?
Is this item I'm looking at the "name brand" version of the item and, if so, would a store brand version work just as well?
I almost always use store brands for items that are small or inexpensive enough to not require a warranty - things like computer cables or food staples or so on. Virtually always, store brands work just as well as name brands at a much better price.
Even if you later find out that a store brand wasn't good enough, all you have to do is not purchase the store brand for that particular item next time; you're not really "out" very much. On the other hand, if the store brand works just fine 99% of the time, you're going to consistently save money by going that way.
Are there similar items that could fulfill my want?
Maybe I've found myself desiring the latest and greatest smartphone, but when I'm honest with myself, what I really want are a few specific features on that phone. I want a good camera, for one, and the ability to support a few key apps that I use all the time.
Do I really need the latest and greatest smartphone for those things? Honestly, I don't. You can get a very good camera and a good app platform on a midrange phone, not the newest and most expensive phone.
Recognizing what features I actually want and sticking with those features helps me keep my purchases sensible.
Why do I want this item at all?
What am I really hoping to get out of this item that doesn't already exist in my life? Is it providing anything in my life that I don't already have access to? Is this just a substitute for something else that I want, like buying a boardgame because I lament not having the time to play?
If you ask yourself honestly what it is that you want from this item, you'll often find that you want things that have little to do with the item at all, like more time to enjoy a particular hobby. Often, the item in hand won't help at all with that true desire.
Another poor reason for wanting an item is to impress someone else. Even if that positive impression were to occur, it's the most fleeting type of impression, something that won't help you a bit in terms of a long term real relationship with that person.
What else could I do with this money?
In the end, any purchase comes down to an exchange of money for an item or a service. When you agree to that purchase, you "lock in" that money to that particular good or service, meaning you can no longer use that money for anything else. This is the "opportunity cost" of that purchase.
It's well worth your time to consider the many other things you could do with the money you're about to spend. Aren't there better uses out there for that money? Isn't there something more in line with your life goals that you could do with the cash?
Even if you can come up with other possibilities to merely consider, it's usually worth your while to wait on that purchase.
I don't use these questions as a formal checklist. Instead, I've found that these questions just naturally come out of my head when I'm critical about my potential purchase of an item.
At first, it might actually be a good idea to use this list - or a very similar list of your own modification - as a "checklist" for purchases, but you'll find that once you get into the practice of really questioning your purchases, you won't need a formal checklist any more. Your mind will do it for you.
When you reach that point, you will have turned the corner from an impulsive buyer into a discriminating buyer, and at that point you'll be well along the path to financial success.