How impulsive buying can be hazardous for your finances
What do you do when your wife or husband says "Oh, that's such an amazing sofa-set" or when your kid very sweetly asks you "Can I have the latest video game?" Well, most people give in to their own or their family's desires and fulfil all wishes. Agreed, in a competitive world which we live in we all have aspirations of having all the comforts and luxuries, and not only fulfil our basic needs. But buying things when your finances don't allow it can be extremely detrimental for your long term financial well-being.
You see, it is very important to be organized as far as your finances are concerned. Before you make impulsive purchases, first you need to evaluate whether your current finances permit such purchases. You need to check whether are you compromising on much larger goals of life such as buying your dream home, your children's future (their education and marriage), and your own retirement; amongst host of other ones. You see, no matter how much your urge is to buy the best of the best things in life, you need to introspect and see whether you actually need it or you could possibly settle down for another option fitting your budget. This is because, no matter how young your child is or how far away you are from retirement; they are important life goals and thus need your attention today, to live a blissful future. To handle contingencies it is important to save your hard earned money and build a contingency reserve, so as to ensure that you and your family can sail through challenging times, on the occurrence of a contingent event. Ideally, you should be keeping about 6 to 24 months of your daily expenses in a savings bank account depending upon your life style and financial well-being for emergency situations such as loss of job. Likewise to indemnify risk to life and health, having a sufficient life and health insurance coverage is imperative by opting for the right insurance policies. Hence before buying something on instinct, first ensure whether you have set aside a portion of your monthly income towards these goals and subscribed to a prudent financial plan.
Having said this, it does not mean that one does not take some time out for leisure and relieve himself from stress in life. But while doing the same, it is wise to know your means and limiting yourself to it. People often exhaust their excess cash or even land up taking loans and increase their credit card dues while going for a single shopping trip or on a holiday. It is imperative for you to understand that although loans are an easy and quick way to get access to huge sums of money, having a large debt or having a high debt-to-income ratio could have an adverse impact on your borrowing capacity as well as your financial health. You see, most banks would prefer giving loans to borrowers who have less debt in their personal balance sheets. Loans and financial obligations must always be taken seriously and repaid in due time as any default on the payments can harm your credit rating and ability to seek loans in the future.
Swayed by the consumerism in the country, many individuals now-a-days own multiple credit cards and swipe them rampantly. Today, mobile phones, T.V., refrigerator, laptops, tablets and home theatres, amongst host of other such items are all available on easy credit - either through EMI facility on credit cards or such teaser schemes floated by NBFCs. All such luring easy finance options have promoted consumerism and no wonder malls and electronic shops are seeing good footfalls. However as soon as the minimum amount or a part of the amount is defrayed on a credit card users get exposed to a stupendously high interest rate. The urge of owning things on credit and enjoying a lavish life style, has got many under a credit card debt trap.
So here' a list of points which should put to practice to stop being an impulsive buyer...
PersonalFN believes that all the little expenses that you make often amount to big bills at the end of the month. Very often people don't even realise that they are impulsive buyers and by the time they do, it becomes too late to correct such mistakes. Instead of letting your impulsive behaviour make all the major decisions of your life, you must take preventive actions before it is too late. Also never be reluctant to seek the guidance of an expert if you need help to plan your finances or if you feel matters are getting out of hand.
- Create a budget for your monthly expenses after setting aside certain amount towards your financial goals (retirement, children's education, marriage, etc.). The entire family must be extremely firm about sticking to this budget.
- Before venturing out for a shopping, make a list of the necessary purchases and do not be lured by any schemes offered by sellers on other items. If you cannot stop yourself from being attracted by such offers, take a trust worthy and strict family member or friend who can stop you from being a spend thrift. It may also be wise to not carry your credit card while shopping as this will restrict you to only use the cash available.
- A lot of people enjoy a movie or dinner outing or a spa each week to take off their work stress. Although these things can seem like ‘can't live without' activities of life, it does not harm to reduce these regular activities so as to meet the family's financial goals.
- Be prudent while planning for family holidays. Go for a trip only after you have saved for it specifically. Do not break your contingency reserves for any sort of leisure activities. Even when on a holiday spend within the pre-set budget.
- Sometimes, we become impulsive buyers on a lot of things thinking that these are inevitable purchases. However in order to meet your financial objectives it is sometimes wise to even rationalise on the necessities such as food, electricity and telephone bills etc. Purchasing discounted items, using coupons, negotiating with your local shopkeeper and planning your outings so as to save on transportation costs, are a few ways to keep your expenses in check.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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