Pam Riley recently used her credit card to pay for a new blade for her kitchen mixer, a quick salad at Chick-fil-A and a new pair of shoes.Read More
Soon, her credit card balance was bloated.
But after attending a recent Duke Credit Union seminar, "The Psychology of Spending," Riley checked her banking services at Wells Fargo and found she already had access to "My Money Map" a secure online tool that helps her track and analyze spending and set goals for savings.
"I think monitoring my money more closely will help me make wiser choices for spending and saving my resources," said Riley, a senior program coordinator for the Duke FOCUS program. "And if I want to retire comfortably, I need to create different habits."
Daily tracking of spending is a powerful way to raise your awareness of spending patterns. Here are five other tips for becoming a more conscious consumer.
1. Pay in cash
Research shows that shoppers spend more money when they make purchases with a credit or debit card rather than cash. "In traditional economic theory, the form of the money shouldn't matter, but it clearly does," said Avni Shah, a Ph.D. student at Duke's Fuqua School of Business studying spending patterns. Shah sees this in her own habits when the Starbucks cashier asks if she wants a pastry with her coffee. She's much more likely to say `no' if she is paying with cash, she said. "When you use cash, you feel your loss of wealth more immediately," Shah said.
2. Be leery of ads
Advertising pulls at your emotions, luring you into buying a product based on imagined benefits. For example, buyers are more likely to pass up a generic cleaning product and buy a similar product with a picture of a family in a sparkling clean kitchen. The picture helps them imagine how they'll feel after using the product. "Advertising's job is to plant the seed in your mind to buy a particular product," said Scottie Dowdy, a financial guidance counselor at the Duke Credit Union who taught the "Psychology of Spending" seminar. "You can't avoid advertising, but you can consciously separate the emotional appeal from the true value of the product," Dowdy said.
3. Set spending and saving goals
Setting short and long-term goals and periodically reviewing them can help control spending by keeping the importance of saving top of mind. "Simply being concrete about our financial plans makes us more careful about our spending," Dowdy said. "Planning requires us to look more realistically at our resources."
4. Plan ahead for windfalls
Rebates, tax returns or other irregular sources of income are often viewed as "free money" to spend without guilt, but these windfalls offer an opportunity to bring discipline into your spending habits. "If you allocate just half of your tax return into savings, it can make a big difference to your future finances," said Shah, the Fuqua student studying spending patterns.
5. Indulge - occasionally
Impulse buying is the slippery slope to ruin for many shoppers, but Shah said the occasional planned indulgence need not be totally banned. "Impulse shopping is fun. Otherwise, we wouldn't do it," she said. "So set up a splurge account but stop buying once you've hit the limit you set in your budget."