October 22, 2010

Tip of the day—Determining Needs vs. Wants

Perhaps one of the best tools in saving money, staying on your budget, and avoiding overspending is to learn the difference between needs and wants.  If you’ve listened to Dave Ramsey’s radio show for any amount of time, you can see a pattern with many of his guests.  One caller recently said that he and his wife have over $100,000 in debt, and when asked about how it happened, he said something to the effect that they weren’t watching their money.  Dave calls this paying the stupid tax, and even if you aren’t looking at a $100,000 debt, most of us have paid a stupid tax or two.

I think about the many, many clothes that I’ve brought home from the store only to realize that they don’t look good on me, are the wrong fit or color, are poorly made, or just don’t fit in our budget.  I can’t tell you how many of those clothes have gone to a garage sale or consignment store only to be sold for pennies on the dollar.  I think about the many trips to the dollar store I made in my youth and how easy it is to blow money on junk.  I look back, and though I’ve always been a pretty frugal and thrifty gal, I think of how much money I wasted on stupid stuff.  My stupid tax was paid time and again, each time I learned my lesson a little more.  Now I’m a pretty disciplined spender and saver.

Here are a few ideas for helping you determine the difference between needs and wants when shopping:

  • Have a limit that you and your spouse can spend without first having a discussion about the money.  Hubby and I have set $100, which works for us.  If there is a tool that he needs for a project, if I need to buy a winter coat and boots, or if we have an expense for our car, the rule of thumb is that if it is within our decided upon monthly budget and under $100 we can make the decision independently.  If it is more than that, though, we run it by each other first. 
  • Have an accountability partner when shopping.  It is so easy to go shopping with a girlfriend and overspend.  If she is encouraging your spending or helping you to justify it, it might be best to pick a different shopping partner next time.  Stick with someone who has similar financial goals and is mature with spending, especially if you need help in being disciplined with your spending.
  • If you walk at the mall, don’t bring your money in with you.  In the colder months, I walk for exercise at our local mall.  While making my loops it is fun to window shop.  If I’m not careful, though, each of my trips for exercise can become a shopping trip as well. 
  • Shop with cash.  Leave the credit cards and debit cards at home.  Set a limit for what you plan to purchase and use cash to buy.  You won’t be able to overspend.
  • Take a break when shopping.  When experiencing the shopping high, our brains switch to using a different type of decision making.  Problem solving, rationality, and reasoning go out the window.  Stores, advertisers, and manufacturers do everything in their power to keep you buying more and more, making it hard to resist.  When you take a break, even a short break in the shopping experience, you are better able to think about what you are doing.
  • Shop first online or in catalogs.  I can’t tell you how many times I’ve thumbed through a catalog and found product after product that I just had to have only to not even remember what they were the next morning.  By shopping online and in catalogs (i.e. away from the stores), you take breaks, compare prices, and are a more informed shopper.  Give yourself a day or longer in between finding what you plan to buy and actually buying it.  This will help you to make sure it is indeed something you need instead of just something you want.
  • How long will this last?  There is a lot of junk out there.  Buying it takes a toll on  your budget and the environment.  Try to pick products and goods that will last instead of ones that won’t.  Sometimes it takes time to find what you need that is high quality.  Antiques are good examples—they are well made, can be refinished if needed, and last for generations. You may have to spend a little more time shopping to find something that is right, but once you do, you’ll be amazed at how long it will last.
  • Instead of buying new try to repurpose, refinish, or reupholster an old item. I’ve mentioned this before in regards to entertaining.  Instead of going and buying a new platter, vase or something else you “need”, look around your home and find a way to use something you already have in a new way. It may not be new, but it will feel new to you.  I’ll give you an example.  My cousin is a creative guy—they kind of guy who can look at a pile of stuff and see its full potential.  He can make art out of rebar, literally.  He picked up some chairs a while back at Office Supply Outfitters in Knoxville and paid $10 a piece for them.  Then he picked up a couple of old couches that someone was going to throw away.  Then he waited until he found a really good deal on leather and upholstery work and had the entire set reupholstered for the cost of what one regular couch upholstered in cloth would have been.  His brother showed him a website where a similar living room set in leather was selling for well over $10,000—his entire set cost him only 10% of that amount. 
  • Why am I buying this?  Are you tired, depressed, hungry, bored, trying to impress someone else, think that it is trendy, trying to be something you aren’t, is it because you deserve it?  What is it?  Why do you want to buy the item?  Be honest with yourself. 
  • Don’t settle.  Perhaps the most disciplined shopper in this category is my sister.  She won’t settle.  If she doesn’t like it or need it or it doesn’t work for her, she won’t buy it.  I’ve been shopping with her for an entire weekend for an Easter outfit at the end of which I am ready to say, “Just buy something already,” but she won’t do it unless it is right.  And do you know what else?  Her house isn’t cluttered and filled with junk and knick-knacks either. 
  • Think about your purchase in terms of your hourly wage.  How long will I have to work to purchase this item?  How long will my spouse have to work to purchase this item? 
  • Think long term instead of short term.  I encourage clients with whom I work to put something in their daily path that reminds them of their goals.  If a person is trying to stay off of drugs and regain custody of children, a photo of her children on her mirror in the bathroom, on the refrigerator, on the dashboard of her car, everywhere reminds her of what she is working towards.  Do the same for yourself and your family.  If trying to pay off your home mortgage, put up a photo of your home.  If you are trying to save for a vacation, put something that reminds you of that.  Our brains work in short term mode much more easily than long term mode and these little reminders help us to stay focused on the big picture.
  • Have a little mad money.  Budget in a little extra money so that you don’t feel so restrained or confined, even if it is only $5 per month.  Having a little pocket money to get a manicure, pick up a cute pair of earrings or a treat for your daughter is a nice way to reward yourself for being savvy with your shopping.  Don’t forget to have fun too!

What helps you to be disciplined with your spending?  Any additional tips to share? 

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