The Psychology of Spending: How to Outsmart Impulse Buys

Impulse buying involves a spontaneous purchase that you didn’t plan for, such as heading to the grocery store to buy a loaf of bread and coming home with a dozen items. These kinds of purchases used to only happen at the checkout counter, with magazines, candy, and other items placed near the register.

These days, it often happens online. Every time you place an order, an online merchant recommends several other items you might like. A social media influencer might promote a “must-have” item that doesn’t live up to its hype. People tend to make impulsive purchases when they’re stressed, upset, or having a mood swing. Many people engaged in “revenge spending” after the coronavirus pandemic, where they spent impulsively on things like travel, expensive clothing, and dining out to make up for the lost time they experienced during the shutdown.

You’re not alone if you’ve made an impulse buy. Forbes magazine reports that impulse purchases account for 40% to 80% of all online sales. A social media post or a targeted ad sparks your interest and leads you to a website where the algorithm conjures up suggestions for additional purchases, based on the item in your cart and your shopping history. When the items arrive, you may wonder why you bought them in the first place.

It’s next to impossible to avoid these kinds of offers, so it’s important to understand how emotions and your environment can influence your impulse spending habits. Understanding the psychology of spending is the first step in learning how to stop impulse buying and develop smart money habits.

Why Do We Make Impulse Purchases?

Impulsive buying is fueled by emotional triggers. A product or service might promote itself as a way to alleviate stress, bring happiness, alleviate boredom, or save you money. Influencers and online merchants try to fulfill as many of these emotional needs as possible. Backed by artificial intelligence and computer algorithms, these tactics have become more effective than ever before.

They often combine high-pressure marketing tactics as well, such as limited-time offers or offering a discount if you order one or more additional items. It can be hard to fight these impulses, especially with the convenience of online shopping and one-click purchases. That’s why it’s important to understand their methods and watch out for them so you can resist the urge to spend impulsively in the future.

The Real Cost of Impulse Spending

A 2021 survey by the Better Business Bureau revealed that more than half of respondents said they lost money while shopping online or through social media, because an impulsive purchase turned out to be a scam. The product or service either didn’t exist or wasn’t delivered, its description was misleading, or they received low-quality or counterfeit products. The survey also revealed that 64% of those who were scammed were actively searching for a product, while 36% were just passively looking for something or not searching at all, but saw an item promoted on social media.

Even if an impulse purchase is for a small amount of money, several of them can add up to significant amounts over time. This can have a direct impact on your savings goals and debt repayment, especially if you’re purchasing these items on a credit card and not paying off the balance each month. Many people become stressed out because they regret making these purchases. Unfortunately, this can lead to additional impulse buys if someone alleviates that stress through shopping online or perusing social media, where the algorithms tempt them with additional products they might not need.

Strategies to Outsmart Impulse Buys

There are many ways to control your impulsive shopping habits and tips to control spending. Try creating a wait period, where you put all purchases on hold for 24 hours, or even 48 hours, to see if you really need the item. During that time, you could do plenty of research about what you’re buying and the business that offers it. Online reviews may be helpful, but they can also be faked. Try looking up the business at the Better Business Bureau website and do an Internet search for the company’s name followed by “reviews” or “scam” to see what results.

Go over your monthly budget and allocate a certain amount of funds for “fun” spending, such as dining out, food deliveries, entertainment, and online purchases for things you want but don’t necessarily need. Making a budget and sticking to it can help you avoid impulsive and unnecessary spending and help boost your savings.

Use a shopping list for groceries and online purchases. This encourages you to actively think about spending and to focus on the essentials. If you’re going to shop for something online, make a list of what you’re looking for to help reduce the chance of an impulse buy. You should also unsubscribe from promotional emails and limit or block notifications from any shopping apps you may use.

Building Smarter Money Habits Over Time

Many people create a budget but then fail to review it, which kind of ignores the whole point of having a budget in the first place. Keeping track of your spending is the first step towards understanding your monetary habits, reducing impulsive spending, and saving money. Whether you use a piece of paper, a computer spreadsheet, or an app on your phone is up to you. Just find a method that works for you and one that you’ll stick with.

Another way to reduce impulsive spending and save more money is to set up automatic transfers between accounts before you allocate funds for nonessential spending. Many of our customers have their income deposited into a checking account, which they use for paying their bills and everyday expenses. They also have a portion of that income automatically transferred to a savings account. Whether you do this with every paycheck, or on a weekly or monthly basis, many people discover that this can reduce their impulse buys because they look at their checking account before making a purchase and avoid spending what they have in savings.

Try setting savings goals that might be ambitious but are still possible. When you do meet your goals, you can reward yourself with a nonessential purchase as long as it doesn’t break your budget. Creating positive reinforcement is an effective way to keep your budget and spending habits in mind when considering a purchase. As part of this goal, ask yourself whether you really need something before buying it. If the answer is no or maybe, revert to your waiting period and put the purchase on hold for a day or two to make sure it isn’t an impulse buy.

How Your Bank Can Help

At F&M Bank, we’re here to help you meet your savings goals and achieve financial success. With our online banking portal, you can set up account alerts based on a wide range of criteria, such as your daily or weekly balances and transactions posted to your credit or debit card. You can also leverage tools within mobile banking apps where you can view your account balances, receive alerts, pay your bills, and deposit checks using your smartphone.

Actively monitoring your accounts can help you avoid impulsive shopping and keep you focused on your financial goals. If you only have one account with us, chances are it’s probably a checking account. Consider opening a savings account and making regular transfers into it, which can help you save money and spend within your budget. You can also check your credit score regularly and sign up for credit alerts to protect your finances.

Outsmarting Your Own Brain

Impulse buying happens to practically everyone. Part of the reason to keep track of your spending is to look for patterns in how you shop. This can help you figure out which method works best in keeping your spending under control and meeting your financial goals. Every time you manage to curb an impulsive purchase, consider it a victory. Even if it was just a small amount, it’s the kind of change in spending habits that can help you build long-term financial freedom and fiscal responsibility.

If you want to curb overspending and save more money, try doing it one step at a time by adopting one new habit. Whether it’s a waiting period for purchases, actively tracking your spending habits, or researching a merchant before buying, a simple shift in your spending habits can yield substantial rewards in the long run.

Open a Savings Account to Automate Your Goals

A savings account can help you limit impulsive spending and save more money, especially with automatic transfers from your checking to your savings account. Combined with online and mobile banking, these tools can help you track your finances and reach your savings goals.