Every person makes hundreds of purchases every week. Think about how many individual items you have when buying groceries, how often you eat out or use a vending machine, or how often you buy new clothes. Each purchase has a reason, but each purchase costs money.
One of the cornerstones of strong personal finances is knowing why you buy what you do, and knowing how to research your purchases in advance.
Why We Buy What We Do
Coke or Pepsi? Large coffee or Medium? Bag lunch or go out to eat? You will make thousands of tiny decisions every week about how your paycheck gets divided.
It is not possible to carefully consider every single purchase you make – this would lead to Decision Fatigue. Decision Fatigue happens because every choice you make takes some brainpower. As you spend more time and effort considering each choice, you will get worn out very quickly – this is why most people spend a lot more time researching “big ticket” purchases than every item in your grocery cart.
Once you break down your spending with a Spending Plan, you will see that all these little purchases add up very fast. This is why it is important to understand why you make each of those small purchases.
Advertising and Spending
You are susceptible to advertising, everyone is. Most people tend to think advertising does not really affect them much, but no matter how savvy you are, you will be affected by ads.
When you are deciding whether to buy a product, you already have some pre-formed opinions about what benefits you think you might get, which you compare against the product’s cost. But where did that pre-formed opinion come from?
This is called Source Amnesia, and it is exactly why advertising works for everyone. Source amnesia is when you know a fact, but cannot necessarily remember where you learned it from. This is where advertising has the biggest impact – smaller purchases, where you spend only a few seconds weighing pros and cons, where a simple endorsement you might half remember from an ad can tip the scales one way or another.
Our own previous experience is the opposite of advertising – we have already tried a product before, and so we know exactly how well it works and the value it brings relative to cost. Smart shoppers need to weigh their own previous experience with caution, nearly as much as advertising. This is because it can make you fall into a “Spending Rut”, and less likely to compare one product to alternatives.
Everyone knows older relatives who use the same products or visit the same restaurants constantly for 30 years, even though newer, better alternatives have come out more recently. This happens because shoppers fall into these Spending Ruts, where a positive previous experience has switched off the part of the spending process where you consider alternatives.
When it comes to spending, Peer Pressure is not always a bad thing. Your peers will share their own experiences with a product, which is a good way to know what you are buying before wasting money. Getting an endorsement for a product from someone you trust is one of the best ways of knowing it is worth the price.
On the other hand, peer pressure can also encourage over-spending. If you have more than a couple friends, you will probably be getting recommendations from each one, claiming different types of products are well worth the cost and worth the investment. Each one might be right, but even if they are, buying more than a few recommendations can really hurt your budget.
Think about TV shows – you might have 4 different friends, each recommending a different TV show, which takes ½ hour to watch one episode. If you take the advice of all 4, you’ve already dedicated 2 full hours to TV, before you even get to the shows you privately wanted to catch up on!
How to Spend Your Time Researching
Researching purchases is mostly a time problem – there are thousands of purchases to consider, but only one of you, and 24 hours in a day. Thankfully, there are some great ways to research your purchasing habits faster and easier than ever before.
Use Your Spending Plan or Budget
This is really step one when looking at your spending habits – first define what money you actually have to spend. When you make your budget or spending plan, this usually means looking at what you spent last week (or last month), and using that as a starting point.
Next, see if you can reduce that spending without missing out. You might prefer name-brands or getting your coffee to go, but once you sit down and realize how much you can save by switching, you might prefer that extra cash at the end of the month a bit more.
This is a great way to “research” how much each item is really worth to you. Simply try decreasing your grocery or clothing budget by a few dollars each month – this will help you put an extra few seconds of thought into each item that goes into your grocery cart, which sometimes is all it takes to save a lot of money in the long run.
Compare Online as You Shop
Most people have a smartphone with full internet connectivity. If you are purchasing items worth more than $20, it will be well worth your time to try a quick price-check online for that item.
This gives two major advantages: First, you will see instantly if you can find it somewhere else cheaper. If the purchase can wait a few days, you can instead order it online when you get home. Second, it will instantly connect you to user reviews of other people who have purchased it. This will help see the product’s actual quality, how long it will last, and if anyone regrets the purchase.
If you want to buy something online, there is a simple trick to saving a huge amount of money – simply do not purchase it as soon as you made up your mind that you want it, even if it is on sale.
This gives you a few automatic advantages when it comes to researching, with absolutely no extra effort. You might have already noticed when advertisements “follow” you around the internet. You can put these ads to work by doing some of the research for you! If you found an item that you want but do not buy it right away, the ads that are following you will now be showing you a bunch of alternatives – some might have better prices or better reviews that you did not see during your first round of research.
The biggest advantage is simply cutting out impulse purchases entirely. According to the BBC, most shoppers waste about $800 per year on impulse buys that they never really use and never needed. Delaying your purchase by a couple days kills that impulse – if you no longer want it, you just saved yourself the entire purchase price (plus having junk accumulate at your house).
Be Wary of Sales and Bundles
A shopper recently purchased a laptop from a major electronics store. It was a competitive price, was well-researched, and had all the specs desired. At the check-out, the salesperson offered a bundle – the store would offer a full set-up of the laptop, complementary antivirus software with a 1-year subscription (which the store sold separately for $70), and a 1-year warranty for accidental damage, all for $60.
This bundle exists at most electronics stores, with similar terms, but really does not offer much more than simply increase the cost. The bundle is offered at check-out specifically to give the buyer little or no time to research the purchase before making a decision, which is always a red flag. In reality, no part of the bundle was a good deal:
- There is no real “set-up” process for new computers anymore. Just entering your name and logging into your home’s WIFI is usually enough to get up and running.
- Almost every new computer comes with a “trial” version of professional antivirus software, which lasts as long as the membership offered in the bundle. Windows also now includes its own anti-virus built in (known as Windows Defender), and free versions of almost every other reputable antivirus exist for extra protection. Apple users are not immune to viruses (as many suspect), but also has its own free suite of antivirus software to choose from.
- The accidental damage warranty offered by the store was almost identical to the one already included by the manufacturer of the laptop, providing no benefit.
You can find a similar story with almost any bundle ever offered at check-out. If you are being offered a bundle deal without being given time to do proper research of what you are buying, you will be better off by opting out and sticking with the purchase you have already investigated.