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Death by a thousand cuts.
That's what I feel like is happening to the average American when it comes to overspending.
Do you even check your bank account on a daily basis? Weekly? Or maybe you're just overwhelmed every time you open it. You check your balance to make sure that you have enough in there… but the transactions section? Now that's a scary place.
We Americans make TONS of transactions. Tons of teeny, little, cute purchases that add up to big bucks. Coffee, movie rentals, online subscriptions, trips to Target – I know that what I'm saying sounds completely familiar to you.
Here's what got me thinking about this… the last time we opened up out Financial Renovation course, members were asked to go back and track some of their past spending and categorize it. Almost all of the participants were both surprised and overwhelmed at the amount of purchases made under categories like “I don't have a clue”, or “miscellaneous”. Now, I'm all for a miscellaneous category when it comes to budgeting (because things just come up), but it shouldn't be one of the main categories of spending, should it?
First – why do we spend this way?
There are lots of reasons.
They are at the check out section of the store, those little “add-ons” when you're shopping on Amazon, online movie rentals, stops at the drive-thru. Small and inexpensive items have always existed, but they are EVERYWHERE today. But how many of these little things do you actually need?
It is the goal of payment processing companies to remove as many barriers as possible between you and your money. For decades, the only options to pay were cash (actual physical money), checks, or by a credit card. My how things have changed.
When you purchase from an online retailer, your payment options are saved so that when you make another purchase, you only have to click once or twice. Go to your Amazon account – how many different payment options do you have there? If you're anything like me, the Amazon account section is like a history of every credit cards, debit card, checking account you ever used (not to mention every address you've hd in the past 15 years). When retailers have this much data, it makes the purchasing process that much easier.
And what about paying with your phone? Apple Pay, Android Pay, Samsung Pay, Visa checkout – these are marketed to consumers as ways to make purchasing easier than ever. And it's true. But what's also true is that the easier the transaction process is, the more often you will purchase, and the more money you will spend on each purchase.
So ultimately, the retailers, manufacturers and payment processing companies win. Not the consumer.
According to Gallup, less than 1/3 of Americans set and follow a written or computerized budget. And when I write about setting a budget, I mean decided ahead of time how your money is to be spent. For example, if you budget monthly, you would have to set your July budget in June.
If you don't plan how your money is to be spent, it will just fly away and you will wonder where it went. I can guarantee that a good chunk of it was made on purchases under $10.
They've always been smart, but do not underestimate how keen marketers are today. And definitely do not underestimate the treasure trove of data that you hand over to them every single day just by being online. Have you noticed that online ads are getting better and better at targeting you? The technology that tracks your purchases and where you've been online to make predictions of what you might purchase in the future has gotten creepily good.
Doesn't it seem like the deck is stacked against us? In some ways it is. But we've been willing participants too by parting with our money so easily.
But there are ways to stop.
Even if you don't budget, by simply deciding that you will only make 1 or 2 transactions per day, you will spend less money. Here's how this would work. Did you go shopping at the grocery store today and stop to fill up with gas on the way there? That's 2 transactions for the day, so you're done spending money.
If marketers want to decrease barriers, then it only makes sense that if we increase them, we will spend less money. So the next suggestions have to do with increase barriers to making purchases.
Obviously, you wouldn't use cash for everything, but for groceries and all off-line miscellaneous expenses, physical cash will help you set a hard-line budget. When the money is gone, it's gone. There are many other benefits of using cash.
When online shopping, consider not saving your payment information and also unchecking that box that says “email me more deals!” I'm not talking about the autofill that your browser suggests you fill in, I'm talking about you having an account set up with the actual online retailer. When you do this, they can market more easily to you and it makes your next purchase that much easier.
I think that it makes sense to keep accounts and payment information with some retailers that you know you will make future purchases with, like Amazon. But online stores where you're pretty sure that you won't need to make another purchase, check out as a guest.
Cookies saved in a folder on your computer or phone is the main way that online marketers track your online movement and try to predict your next purchases. If you clear out your cookies, you will greatly reduce how effective the ads shown to you are. Seriously, try it. The ads on random websites will no longer have Amazon items that you were looking at a few days ago, or other products that will typically fir your demographic.
But this only works for a certain amount of time. As soon as you shop for anything online, those ads pop right back up in your Facebook newsfeed and in the sidebars of websites. So maybe this would be a trick that you reserve for those days when you feel especially susceptible to spending extra money. Or if you really want to fight those targeted online ads, try doing all of your online shopping using a private browser window!
If you're not telling your money where to go, it will just go. And you won't know where it went. Setting a budget is the number one way to save money and give you peace of mind. If you're overwhelmed, you don't need to be. Check out my Financial Renovation Course where I show you all the ins and outs of how to create and maintain a budget that will work for your family.
I'm starting this as we speak. Here are the rules:
For 30 days, you are to spend exactly $0 on unnecessary items. Sound easy? Trust me, it's not. This challenge does 2 things.
First, you will quickly learn just how many little purchases you've been making everyday. Just in the first day of the challenge, you will have to make choices like:
“Do I really need to stop and grab a coffee? Or should I just wait until I go home and make some?”
“I don't feel like cooking – do I need to order pizza tonight? Or can I whip up some dinner with the food we have?
You will also have discussions with yourself and/or with your spouse about just what is a need, and what is a want. Do you NEED to get your hair cut? Do you NEED new shoes? The answer to those questions is difficult, right? Yes you need a haircut, but do you need it every 3 weeks? And while everyone needs shoes, I bet you can get by on what you have for now.
So take the spending freeze challenge with me! Commit yourself to make this your spending freeze month!