5 Tricky Spending Traps

This was actually a pretty good movie, in a "girl's night" kind of a way.

This was actually a pretty good movie, in a “girl’s night, drinking wine while gossiping over the dialogue” kind of a way.

I recently took an online quiz called, “Are You a Shopaholic?” Thankfully my results were negative, but it might only have been because it was fairly obvious which answers the compulsive shopper would choose and I consciously avoided them. If I was an honest quiz-taker, I might have had to change a few of my answers because I do go shopping “just for fun” or buy things sometimes “just because they were on sale.” Obviously there’s a big difference between me and a compulsive shopper; my bad retail habits are occasional and mostly harmless, whereas their’s are habitual and life-ruining. But I think we all fall into the “spend more than you need to” trap retailers set for us every now and then. So here’s a reminder of a few common retail gimmicks to look out for:

1. “CLEARANCE!” = “Buy it!” –  Just because something is on sale, doesn’t mean it magically becomes a necessity. How often do we grab stuff we don’t need off the sale rack just because we think we’re getting a deal? If you don’t need it at full price, you probably don’t need it at sale price either. Avoid the clearance rack unless you’re on a specific mission.

2. BOGO – A.k.a. “buy one get one free.” BOGO is awesome if you were already planning to buy an item because you’re getting more bang for your buck. But if you weren’t going to buy just one of the item, why on earth would you buy two? Retailers know the power of a “bargain,” and they’re using that psychology to tempt you into buying stuff you don’t need just because it’s a good deal.

3. Multiple Purchase Price – You see this trick a lot at grocery stores. “Get 10 yogurts for $10!” or “2 bags of chips for $3.00.” Sometimes there really is a discount to buying in bulk, but not always. Check the unit price (or the price of buying just one of the items) before you grab multiples. Maybe the yogurt retails for $1.50 each, in which case the 10 for $10 deal will save you $5. But maybe each yogurt retails for $1.00, so you don’t need to buy all 10 to get the best price.

4. Point of Sale Add-Ons – Gum. Candy. A magazine. We’ve all made that impulse buy while standing in line at a register. That’s why stores strategically place those small, luxury items at the check-out. I don’t really need that issue of Comso magazine. If I did I would get a subscription. But when I’m stuck in a long grocery line and I spot it, I always end up buying it anyways. And doing that each month adds up to a lot of extra money spent. Think twice before grabbing that check-out line treat!

5. “FREE Shipping” – Free shipping is awesome, don’t get me wrong, but there’s usually a catch. “Free shipping when you spend $75 or more” encourages you to spend more than you planned just to save $4.99 on shipping. Similar to a lot of the “deals” listed in this post, free shipping is a great bonus if you were already planning to meet the spending requirements, but you should never buy extra stuff just to get the deal.

Advertisements

Short & Sweet Credit Card Advice

Want to know the single best piece of financial advice I’ve ever been given?

If you wouldn’t go to a bank or credit union and ask for a loan to buy it, DON’T put it on your credit card.

creditcards

I got this tip way back at the beginning of my financial career (like 2 years ago) at a Financial Literacy Conference.  It came from Dr. Barbara O’Neill a member of the New Jersey Coalition for Financial Education. She’s a very smart lady.

The trouble with credit cards is, they don’t feel like real money. It’s not cash you have to hand to the cashier.  It’s not a debit card that affects your checking account balance right away.  It’s so easy to impulse buy or overshop with a credit card because payment is delayed.  And all of the sudden 1 or 2 small purchases turn into 20 and it all adds up to a big balance.  Worst of all, since you haven’t depleted your checking account or the cash in your wallet, you probably feel like you still have money to spend even though you’ve already burned through your monthly budget.

Another problem with credit cards? Interest rates are crazy high (average in the U.S. is 14.95% APR according to CreditCard.com). Why would you want to pay 14% interest on a purchase you could have paid for at 0% interest with cash or a debit card? You wouldn’t! You’re paying more for items in the long run just to delay payment for a few weeks or months. I’m sure you’ve been told before to pay-off your credit card balance in full every month, but how many of us actually do that? According to NerdWallet.com the average U.S. household in 2013 has $7,050 in credit card debt, which makes me think not too many of us are good at ante-ing up each month to pay off our credit card balance.

If you follow Barbara’s rule, however, you are less likely to drive up the balance of your credit cards unintentionally.  Before you swipe your credit card, think “Would I ask my bank for a loan to make this purchase?”  If the answer is “NO WAY” then pay with cash or debit instead.  For example, you wouldn’t walk into a branch and ask for a loan to pay for a pizza, would you? If you were brave enough to do it I can almost guarantee that you will not be approved (unless that particular loan officer has a great sense of humor).

If you reserve your credit card for big purchases that you could ask for a loan for, like car repairs or furniture, you will be a much more cautious spender. It’s likely you’ll have done some research into what you want to buy, where to get the best price, and whether or not you really need it. If it’s truly something you might not have immediate funds ready to purchase, your credit card can help you get it.  If you can pay for it out of your regular budget, do that instead.  No more racking up your balance on nail polish or new going-out clothes from Forever 21 (not that I’ve ever done that . . . ).

With the holidays, Black Friday, and Cyber Monday quickly approaching it’s more important than ever to remember this rule. All the knick-knacks, decorations, gifts, and food that come with the holiday can really put a dent in your wallet.  But putting all of those expenses on your credit card might not be the best solution.  Set a limit to your holiday spending that fits your current budget, even if these means cutting back a little. Start putting a little money away each week (start today!) so you have money saved specifically for holiday shopping.  And last but not least, see if your financial institution offers a Holiday Loan; the rates would likely be a lot less than your credit card and making the payments will improve your credit.

Leaving your credit card at home this holiday season might make your 2014 a little more merry and a lot brighter!