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How to stop impulsive buying

By Faeza
15 September 2016

The best thing money can buy is freedom. As this enables you to afford the lifestyle you’ve always dreamed of. The reality though is that a lack of financial planning can lead to the debt trap.

HIGH LEVEL OF INDEBTEDNESS

This reality, however, has not stopped people from buying impulsively through obtaining store credit cards, which in return lead to debt. According to Tsholofelo Dihutso, communications specialist at Financial Planning Institute (FPI), the high level of indebtedness is a huge problem in South Africa.

A recent World Bank report has revealed that South African consumers are among the most indebted in the world and that 86 percent of South Africans had borrowed money in the last year. While spending can improve your lifestyle in the short-term, it has dire effects for both your lifestyle and relationships in the long-term.

NORMAL SPENDING

Yvonne Venter-Louw, director of YEVL Financial Advisory Services, says normal spending is not always the norm for all individuals. “There are some people that will describe what you and I describe as impulsive spending as their own normal,” she says. However, the general rule is anyone who is concerned about their financial well-being should have a budget in place that they stick to every month.

Normal spending is when consumers buy items that they may not actually need to survive such as a new outfit, but that they have budgeted for. Impulsive spending usually involves a consumer purchasing items they have not budgeted for and don’t necessarily have the money for. This means that they also have not thought through the purchase and determined if it is something that is actually necessary for them to have and that they can afford.

IMPULSIVE SPENDING

South Africa is currently stuck in a culture of consumerism. People get instant gratification from buying new items. “Impulsive spending is common among a fairly large amount of people because these are people who are not financially educated,” adds Tsholofelo. “If people do not understand how budgeting works and how interest on store cards may affect them, they are often more vulnerable to impulsive spending.”

Marketing trap: Many consumers also get caught up in the fascination of sales and special deals. They may see a sign promoting a discount and feel that they must have an item that they probably wouldn’t have bought under different circumstances.

Impressing others: Another reason why people spend money impulsively is the feeling that they need to keep up with those around them – be it friends or colleagues.

Emotional spending: You may find that you spend impulsively when you have undergone an emotional experience, as such you often embark on retail therapy without taking into consideration your financial situation.

BEAT IMPULSIVE BUYING

Ideally, we would all be able to avoid impulsive spending by not occasionally popping into malls and shops during lunch hours or on weekends. However, it’s only a few people who can resist the urge to go to the mall for the whole week. Most consumers usually come back home owning a product but regret the amount of money they’ve spent buying it.

WANT VERSUS NEED

It can be exhausting to always ask yourself a series of questions when you see something nice to buy while window shopping, but you have to do it. “Consider how buying an item is going to improve your life. Does it help you achieve one of your life goals or are you sad and looking for a cheer-me-up? You have to be honest with yourself when answering these questions and this will help you evaluate your spending habits.

Most working parents feel guilty for spending more time at work than with their children,” says Yvonne. As a result, they end up compensating their absence by buying expensive gifts which their children may not even need. Yvonne believes parents should teach their children as soon as they’re old enough to understand what money is and lead by example.

HAVE A FINANCIAL PLAN

The importance of proper financial planning is not just good for the individual but also impacts greatly on the economy of the country. Creating a financial plan helps you see the big picture and set long and short-term financial goals, a crucial

step  in mapping out your financial future. In today’s economy, financial planning has become important.

Tsholofelo further states that there is an overwhelming number of alternatives, including saving and investing in stokvels. Therefore, managing your finances should not be difficult. Effective financial planning is about enabling people to reach their goals. “Whether those goals entail enjoying a care-free retirement, provide a good education for your children or saving for a deposit on a new car,” she explains. “They are individual life goals and are thus important enough to warrant a financial plan and advice.”

THINK LONG-TERM

Review on a monthly basis how much you are spending on groceries, electricity, transport and entertainment. Once you have established your spending on a monthly basis which includes your own basics and that of your dependants, any other spending would fall in a category of additional spending.

Apply for a debit order through your bank which will allow all your installments to be paid automatically before you can use the money on yourself. You can also pay extra on interestbearing loans such as bond, credit cards and car installments. This will save you more money to spend in the long-run and stop the temptation of unplanned spending. “Income should always be greater than expense,” proclaims Yvonne.

PLAN AND BUDGET IN ADVANCE

Yvonne believes that money flows to where it is best respected and protected and this is where planning and budgeting becomes important. You don’t have to buy a policy or start a savings account in order to budget wisely. We are half-way through the year and it’s the perfect time to start planning for your end of the year bonus and not when you receive it. When you plan well in advance you have plenty of time to shop around. Be careful of your spending and if possible join a lift club or take your own lunch box to work.

GET PROFESSIONAL ADVICE

Most people learn how to manage their finances through trial and error. Certified Financial Planners can guide you to secure your financial well-being and help you reach your financial goals. When you have a financial plan, it’s easier to make decisions and stay on track to meet your goals.

IMPORTANT CONTACTS

FPI 086 1000 374 www.fpi.co.za

YEVL Financial Advisory Services 011 794 9566