Wednesday, September 23, 2020
League of Power

The League of power


"Freedom by Friday"

A Simple Plan For Avoiding Splurge Shopping

My inbox has been flooded with member emails lately! I don’t have time to respond to every email but I do make time to read them all. Today one in particular caught my eye. It was from a woman named Jan C. who is from Arkansas.

Jan is obviously a very smart woman. She started her email to me with flattery.  Playing to my ego gets me every time. Her letter started out by thanking me for all the money saving tips I’ve written about over the years. She likes my grocery store tips and home security pointers in particular.

Jan wrote to me asking for advice on how to curb her “window” shopping. She finds that she spends too much money on things she saw in the department store window she walks by every day. Jan wanted to know how she could overcome her splurge habits to save more of her money each month.

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While Jan may not see a problem with dropping $30 here or $50 there, she does realize those sporadic expenses do add up over time and are keeping her from saving money for more important things (retirement, paying off her mortgage, reducing her debt).

I wrote back to her detailing my unconventional method of saving money on those types of purchases. I actually learned this from my mom, who would never, ever buy me or my brother purchases on the fly (ok at least that’s how I remember it) growing up.

She very, very rarely made splurge purchases, or bought anything she wasn’t planning on. When I got old enough to understand more complex money issues she explained to me her money saving trick. She told me to figure out what I make per hour at work.

If you are a salaried worker you can figure it out by dividing how much you make yearly (take off about 25% for taxes) by the number of hours you work per week. An example would be $50,000 a year minus 25%, which gives you $37,500 a year in take home pay.

Divide that number by the number of hours you work in a year (to get this number multiply how many hours you work a week times 52). If you work 40 hours a week then you work 2080 hours a year.  So you would divide $37,500 by 2080 to find that you make $18.03 an hour.

When you find out your hourly rate it’s much easier to weigh your purchases against it. Do you really want to put in three hours of work for that $50 sit down meal? You probably will have trouble even remembering what you ate by the next day. Is that cute $35 blouse you saw in the store window really worth two hours of your life? Heck, will those $9 pair of sunglasses really make you that much happier knowing you have to toil for 30 minutes to justify them?

This exercise has really helped me over the years decide just how much I really want that purchase. Calculating how long I am going to have to work to afford that purchase has made a big difference in my splurge habits over the years. It’s made me realize a lot less things are “must haves” in my life.

I also use the Multiply by 25 Rule to help me determine what my expenses will cost me in the long run. Has a financial advisor ever asked you, “What’s your number?” Referring to the magical number we all supposedly need to be able to retire one day down the road. The number is usually scarily high and seems like there is no way to achieve it. The whole exercise becomes depressing and frustrating.

Well I refuse to view saving money as depressing or frustrating. Instead of saving for this huge goal that’s twenty or thirty years away, I break it down into more manageable savings goals. Doing it this way gives me confidence that one day I can actually save enough to retire and be financially free.

The Multiply-by-25 Rule assumes that you will be able to invest the money saved in an investment that will provide a 4 percent annual real return. Why 4 percent? It’s roughly assumed that you can pull out about four percent from your retirement accounts each year without dipping into the original capital. Which means for every $1,000 you invest, you can theoretically withdraw $40 per year (which is 4%) without dipping into the starting capital.

To do the Multiply by 25 Rule take a look at your monthly budget. Look at each category of spending in your budget and multiply the total by 12 to determine how much each one costs you over the course of a year. Then multiply that number by 25 to learn how much money you need to save to cover that expense for life.

For example, let’s say my entertainment budget is $200 a month that means I spend $2400 a year in that category. Multiply $2400 by 25, and you see that I need to save $60,000 to cover all my entertainment expenses for life.  This way of looking at purchases really gets me to look at how important my purchases are. It usually doesn’t take me too long after starting to save $60,000 that I wonder if I could go out one night a week less or every other weekend.

Another benefit to this approach is the satisfaction and encouragement it provides. It’s a real feeling of accomplishment to know that I have saved enough money to never again be concerned about paying for and working to cover that one expense.

What these two saving methods really do for me is to make me look at money in a different way. It allows me to calculate just how worthy each item I want to purchase is. I can see how long I would have to work to cover that expense, and how much it will cost me in the long run. Although these calculations are all mental, the true result is psychological.

Do you have any unconventional saving tricks that work for you? I’d love to hear about them. Write me a quick note in the comments section.

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Keeping Money in Your Pocket,

Nancy Patterson


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1 Comment

  1. Allistair July 18, 2012 at 7:44 pm

    Dear Nancy,

    Thank you for your report (above).

    One way I avoid “Splurge Shopping” is to set aside a day and time when I will go out to buy. Then decide in advance what I need to buy and set aside the amount of CASH I estimate I would need. Then I go out to shop (on the day and time I planned) WITHOUT a credit card and debit card.

    In that way, I simply would NOT have the money to buy on impulse – from what I see in the store window or inside the store (even when there is a seeming good deal – a “super sale”).

    At all other times when I go out with my credit card and debit card, I am subconsciously aware that this is NOT the time for (usual) shopping and I even sometimes ignore the commodity in the store window. (for example, I completely ignore all the ads inserted in this useful report, because I set aside Sunday mornings to look at (internet) ads. In that way, the chance of buying on impulse from some “catchy” internet ad is reduced to ads I read on Sundays.)

    Also, I did some research (and some meditation) on why I (used to) frequently overspend. It turned out that I overspend for the same reason (more or less) that I overspend on entertainment (i.e. the movies, video games, parties, beers/liquors, etc.). I am (was) subconsciously seeking “relief/escape” as a way of dealing with depression.

    I was able to build the discipline to reduce my overspending habits (using a set time to shop and a set time to look at (internet) ads, and no credit card or debit card during my set shopping time) ONLY after I found a way to address the depression that was upon me.

    I posit that most people who overspend at the department store are also doing it (subconsciously) as a form of relief/escape for the similar reason (more or less) they overspending on other form of entertainment.

    We live in an economic system of life-long insecurity for a growing number of people (despite the massive amount of wealth seemingly generated by some). With even the seemingly wealthy people overspending on (illegal) drugs and other forms of entertainment to “escape”.

    Finally, we live in an economic system that is seemingly driven by “competitive advertising” placed in the store window, your mail box, the road side, the elevator, your home (TV) and even in your school. The system is designed to “make” you overspend and it is only the most conscious and disciplined among us that can withstand.

    A fundamental change to the current socioeconomic system to a (popular) sustainable alternative, would surely deal with the issue of overspending (with credit card!!) on various forms of entertainment as a form of “escape”.

    Thank you for reading.

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