We are heading into the holiday season and many people are in a celebratory mood. Unfortunately many of us end up overspending impulsively. By the time January comes around we are very broke. Fortunately we can use the science of habits to avoid impulsive spending this season.
A habit is a routine of behavior that is repeated regularly and tends to occur subconsciously. A habit can be broken down into four phases which is commonly referred to as the habit loop. Every impulsive purchase or habit begins with a cue. A cue is a trigger to do something. The trigger can be time, location, people, emotional state, and a preceding event. Once the habit is triggered you begin to crave the item and the subsequent reward. You get goose bumps and your heart rate goes up. This craving is what pushes you to finally perform the intended behavior in this case buying or spending the money. Once the item is bought you are then rewarded with this brief moment of gratification and euphoria. Once you understand the habit loop (cue, craving, behavior, reward) you can then begin to break bad habits and replace them with good habits.
Let’s delve a little bit into how to manage cues or triggers to reduce impulsive spending.
Time trigger. I often find myself spending a lot when I have just been paid at the end of the month. Noticing this I decided I make sure I leave very little money on my account. Most of my money is automatically invested the moment I am paid. Some people spend a lot in the evenings, and on weekends. Become aware of when you spend and try and reverse the purchasing pattern. Christmas season generally triggers many people into a spending over drive. People want to tick off on all the projects they have not yet completed.
Location trigger. If you are always hanging out at the mall you are most likely going to spend more. Try and avoid places which force you to spend. Don’t go window shopping if you have no intentions of spending. I tend to avoid mindlessly wandering around shopping centers. Shopping malls have been carefully designed this holiday to entice you to spend during Christmas and New Year.
People trigger. I tend to spend a lot on my kids and family. For instance my daughters have more clothes than I do. There is also that one friend with whom you tend to spend a lot of money whenever your are in their company. Become aware of this situation and gradually limit spending and interaction without seeming unfriendly. Remember you are aiming for financial freedom which means taking some drastic measures. I don’t generally escort people on shopping escapades. We are going to meet old friends this season. Just be mindful not to spend all your savings.
Emotional state. I tend to buy stuff whenever I am feeling bored, happy, lonely, stressed, guilty and anxious. It requires a lot of self awareness to know your emotional state. If you are feeling lonely don’t go to KFC you will most likely binge on ice cream and fried chicken. Parents are usually overcome by guilt and end up buying all sorts of things for their kids. You are not a bad parent just because you didn’t pick up that cute little doll at the check out counter. You are not a bad person if you don’t buy the entire clan gifts this Christmas.
Preceding event. Whenever I go up country I tend to spend a lot especially around Christmas. I am in happy mood and tend to make it rain on the village. You need to be aware of these events which tend to make you loosen your money purse. Become conscious especially of parties, weddings, and generally social gatherings. Gradually you will begin to control your impulses. Christmas and New Year’s eve are usually preceded by last minute binge shopping.
Let’s now take a look at how we can control our cravings and spending behaviors.
Postpone purchase. When I find myself craving to buy something I find that it helps to postpone the purchase to the following day. I promise myself that I will buy this thing tomorrow. This span of time allows me to cool off and think through the decision. Most times the craving goes away. Postpone big impulsive purchases till January next year. You may find that you really don’t need a new car.
Walk away. Simply walk away from the situation. This strategy actually works for many other impulsive behaviors. If you don’t want to drink alcohol maybe you should not be hanging out around bars. Walk away from shopping malls this season. Only buy what you need. Stay away from online shopping sites to avoid being enticed by cool adverts.
Re-frame the situation. Think of how many hours or days you will need to work to acquire this item and then evaluate whether it is worth it. Let’s say you want to buy a new flat screen TV of 1.5m from Game. Let’s also assume you earn 2.0 m per month. This means you make 500k per week. To afford a new screen of 1.5m you need to work for 3 weeks of your life! Is it really worth spending 3 weeks of your life to buy a TV? If you make this analysis for all other expenses you will may realize that you may not be effectively using your most precious asset which is time. You are trading your most valuable asset to buy stuff which may not really bring happiness to your life. Remember the pain of being broke in January before you eat all your salary in December.
Finally let’s consider the last part of the habit loop which is the reward.
Our minds love habits because they quicken the path to reward and reduce resistance to achieving what our minds believes is best for us. However what our minds wants is usually at odds with what is best for us. We don’t want to be enslaved by our jobs but we impulsively buy stuff we don’t really need. We want to lose weight but we binge on ice cream and fries. We want good marriages but we flirt with co-workers.
Rewire the reward mechanism. We need to trick our minds to crave for different rewards which will trigger better behaviors. For instance if you crave spending 50k on a new blouse instead send that money to a unit trust or savings account using your mobile phone. The new reward then becomes an accumulating account balance. By continuously substituting bad habits with good habits you will eventually begin to get in control of your emotions and cravings. Instead of eating an ice cream dessert eat an apple instead. Instead of flirting with your coworker send a compliment to your spouse. Focus on the reward of having enough cash in January and February. While your friends will be struggling you will be whistling all the way to the bank.
Changing your habits is one of the most difficult things you will ever undertake in your life. It is also one of the most rewarding. With constant practice your brain will become rewired and you will gain control over your impulses.
Celebrate, have fun, but don’t forget that Jan-worry is around the corner!