3 ways to control your spending in 2014

Science has thrown up some fascinating facts about how the brain operates when we're in consumer mode, and the processes at work when people over-spend. 

Apply some science to control your spending

There are three main factors at work - and to watch out for - if you want to keep spending under control in 2014:

1. Biological Factors: Don’t go shopping if you’re hungry, pre-menstrual or have just emptied your bladder.

You may not realise that your physiology is affecting your behaviour. But when you're hungry you will buy more food and make higher calorific choices at the supermarket. When in an anxious state you will be more likely to impulse-buy. That's because the physical state of high arousal leads to a depletion of the resources that govern self-control. And fluctuations in activity in the brain’s orbitofrontal cortex during the menstrual cycle will make you more likely to go on a spending spree when premenstrual. And more rational and controlled post-ovulation. Even an empty bladder affects your brain’s control mechanisms. Science has shown you’ll be more likely to (sorry) splash out if you’ve just spent a penny. So pay attention to your body before hitting the shops, it may be telling you to hold fire.

Try timing shopping trips with your menstrual cycle and avoid the pre-menstrual phase

2. Emotional factors: Don’t shop if you’ve just had a row, a stressful day or been dumped by your boyfriend.

People experience a range of emotions (anger, fear, sadness) in their daily lives and engage in all sorts of behavioural responses to keep them in check.  Some women find shopping gives them an emotional outlet, the way that alcohol or drugs can do for others. It distracts them from negative feelings and provides comfort in the form of a treat or reward. In fact studies of compulsive buying have shown that its prime function is to repair mood. So spot when emotions are running high and find an alternative way of releasing them. Find  distraction through exercise or relaxation, or seek social support by spending time with friends. Concentration, whether on gardening, painting or rock-climbing, is also a good way to absorb negative emotions. And the Do Something Different approach to behavioural change could help see you through the tough times because it's all about about breaking habits and increasing behavioural flexibility.

Buyer's remorse is like a shopping hangover

3. Cognitive factors: Don’t go shopping with low self-esteem and an “I deserve it attitude”.

Impulse purchases can trigger a lot of self-justification in the consumer, to assuage the guilt of over-spending. Their thoughts echo with the messages that have been implanted by constant brain-washing and bombarding marketing campaigns. Thoughts such as “Why shouldn’t I have it?” “I work hard I deserve it” “My friends will love me for it” and so on. Self-talk can also shift the focus onto the wrong things, “I’m saving £100 by buying this in the sale” (instead of, “I’m spending £200 I don’t have") or even "I'll show him!" Some cognitive reframing can help here. Relabel your credit card your debt card. Silently answer the ad-men back. Recall when you last had buyer’s remorse and tell yourself how you’ll feel tomorrow. And find ways to boost your self-esteem so that you can resist the constant bombardment of persuasive messages. 
Few people greet a large credit card bill with the words, “Because I’m worth it”.

Moments of Weakness: Five Impulse Spending Triggers

Do you know what your weak spot is? Is it the shoe section in Harvey Nicks or those racks of beauty products at the airport? Do you buy more food when you're hungry (who doesn't)? More clothes when you're stressed? More gifts when feeling guilty? More of anything-that-isn't-nailed-down when you're pre-menstrual and have just been paid?

People rarely buy stuff for utilitarian reasons. Buying is more often the result of mind-boggling marketing tricks, seductive store layouts and a whole host of biological, psychological and even evolutionary factors.  

Purchasing decisions aren't always made rationally

We aren't always in as much control as we'd like to be, as the growing number of people with credit card debts or compulsive shopping disorders will testify. And men and women shop differently, with more women inclined to spend on impulse.

Impulse buys are a buyer's curse and a seller's dream. 

A recent article on the excellent Huffington Post website has captured the Five Big Moments When You're Most Likely to Overspend. 

According to their writer Candace Braun, those moments of weakness are when:

You're Mindful of The Time:  A slogan that urged people to "spend a little time, enjoy C&D's lemonade," resulted in more people buying a drink, and paying 51% more for it (compared to a those who saw a sign that asked them to "spend a little money"). This 2008 study from Stanford University showed that  'spending time' feels more like buying an experience, not just handing over hard-earned cash. Slogans linked to time, like 'thank Crunchie it's Friday' work in the same way.

If the time seems right.....

You're Trying to Avoid The Crowds: You may feel super-organised shopping at 7 a.m. on a Wednesday, when Tesco is blissfully quiet, but your purse could take a bigger hit.  Being in a crowd makes us less likely to overspend, according to a Journal of Consumer Research study. We are more focused on getting out unscathed than on making another purchase.

I know you didn't come out to buy this, but here you are!

You've Got Money in Another Account: That offer of the £100 bonus for opening an extra account seems a no-brainer. However, a May 2013 study found that people tend to save more when they have just one place to deposit money.  Researchers say that with one account it's easier to keep track of how much is in there -- and how much you're spending. When we have multiple accounts, it's easy to spend from one while feeling reassured there's money in the other account too.

You've Got to Buy Something Embarrassing: To try and mask the embarrassing item in their basket, almost 80 percent of people will pile in unnecessary extras to divert the cashier's and other shoppers' attention, a Journal of Consumer Research study found. Online shopping could be the answer here!

Gift purchases are less guilt-ridden

You Need Some Retail Therapy: It's common to feel the urge to splurge when emotions are high or mood is low. My research has also shown that 75 percent of women are more likely to overspend or impulse buy when treating someone else. Feeling low can lead to us literally trying to buy happiness and buying gifts for those we care about can help us feel more connected to them, as we say in Sheconomics. Of course, buying for someone else doesn't induce as much guilt either when money is tight.

Thanks again to the Huffington Post for bringing these spending triggers to light, and for including Sheconomics in their article - it's always nice to reach out to our US readers - issues with money cross cultural boundaries and oceans too.

Do you need some emotional reconditioning when it comes to money?

Whether we’re strapped for cash or mega-rich, our relationship with money can be a highly emotional one. A mere mention of the ‘M’ word triggers all sorts of complex feelings in many people. Why? 

It may be because of the way our parents talked to us about money. Or due to bad habits that we have developed as adults. However, one thing is for sure. If you can improve your relationship with money you’ll feel happier and healthier all-round.

Financial decisions are always rooted in our psychology. Shall I buy this or not? Attack this money problem or ignore it?  Spend for today or save for tomorrow? 

These choices involve a tug-of-war between the sensible part and the emotional part of our brain. The emotional part may be our childish self. The one who wants to leave decisions to someone else. The one that’s scared of responsibility. Impulsive or even greedy.

Many financial decisions involve a tug-of-war between the sensible part and the emotional part of the brain

Giving in to the emotional side can affect our self-esteem as much as our bank balance. It  leaves us feeling empty, anxious or even depressed. These feelings can trigger a spending spree or financial meltdown. Then before we know it we’re caught in a vicious cycle. My research has found eight out of ten women use shopping as a way of treating their moods, so it’s vital to seize emotional control.

In Sheconomics we captured some of the troublesome thoughts women said they have about money. Perhaps you recognise some of them yourself:

• I'm ashamed to own up to not understanding my finances
• I'm totally confused when it comes to making any money decision
• I don't feel grown up when it comes to money
• Money worries keep me awake at night
• I'm scared to face up to my debts
• I’m worried about making the wrong money decision
• I'm embarrassed about how much money I've wasted over the years
• Shopping is how I lift my spirits when I'm feeling low

How many of the above apply to you?  

If it’s three or more you may be letting your emotions rule your money. The emotions that crop up most regularly are fear, guilt and embarrassment which, if not dealt with, risk harming your financial situation. A bad financial situation can affect physical and mental health or damage relationships. That's why emotional management is where financial management begins. 

Frightened about money? Fear leads to paralysis so try these small actions to help beat it:

• ·      Trick yourself into saving by setting up an automatic direct debit into a savings account each month.
• ·      Subscribe to a friendly money newsletter so you are drip-fed with money matters (see www.sheconomics.com).
• ·      Confide in someone who’s good with money, own up to your fears.

 

Embarrassed about money? If you feel ashamed at how little you know or how badly you manage your money, try these:

• ·      Explore a jargon-free website (e.g. www.savvywoman.co.uk or www.sheconomics.com).
• ·      Schedule regular money chats with your partner or close friend.
• ·      Make yourself negotiate a better deal (e.g. on your mobile phone/energy contract) or demand a refund for poor service or shoddy goods.

 
Guilty about money? Guilt can lead to secrecy or pushing money problems under the carpet. Try these strategies:

• ·      Get a sensible money buddy. Shop with them, and talk through money issues too.
• ·      Leave your credit card at home. Carry only the cash you can afford to spend, no more.
• ·      Organise your paperwork into bold coloured files and visit them often.

As well as these, use some emotional reconditioning strategies to help bring the sensible part of the brain back into play. And continue to monitor your money emotions to keep them in check. Try to:

1. Identify the emotion. Be as specific as you can. (Am I ignoring my credit card bill because I’m ashamed of buying that expensive make-up?).
2. Ask where it comes from. The cause may not always be obvious. Is it a reaction to the present or a voice from the past? (My mother always felt bad if she spent money on herself, she made us feel the same).
3. Challenge the emotion. Is it useful now? (My mother had to be frugal  - but as long as I can afford it and budget carefully, I needn’t be so hard on myself).
4. Connect with what you want. Think of a future goal not your current feelings. (I’d like to get the deposit for a house, I’ll feel proud to own my own place).
5. Do something different to act against the emotion and change your feeling. (I’ll pay the bill,  enjoy what I’ve bought, then budget for saving and spending each month).

Finally, for a simple financial health and free practical advice visit www.moneyadviceservice.org.uk

This article first appeared in Healthy magazine May 2012. Available from Holland and Barrett stores or via online subscription.

20 money milestones for kids

As school exams get underway there’s a lot of stuff being digested in teenage bedrooms all over the country. I don’t just mean chocolate hob-nobs, but maybe some geography, german and algebra too.

Are modern kids prepared for the money world?

However,  one subject that’s notably absent from the modern curriculum is financial literacy. 

In a couple of years hoards of these youngsters will be managing their own finances, perhaps while saddled with student loans. And research shows that a big chunk of them won’t understand the money basics, like the difference between AER and APR or how compound interest works, by the time they reach adulthood.

That’s why I welcomed the launch this week of a website aimed at helping kids understand money. Moneyasyougrow.org is a site that features 20 essential money milestones that kids go through from the age of three to eighteen.

OK, it’s a US site but loads of the common sense stuff applies here too.

As do the key activities that help kids to learn at each age stage. I’ve selected just one for each age group here:

3 – 5 year olds need to understand that you may have to wait before you can have something that you want (see my earlier blog on one thing to teach your kids)

6-10 years olds need to know that it’s good to shop around and compare prices before you buy

11- 13 year olds are advised to save a dime for every dollar they get (for kids in the UK that would be 10p in the pound, although I suggest a third is better)

15 – 18 year olds are advised to use cash rather than credit cards for purchases and the over 18s are told they should only use a credit card if they can pay off the whole balance in full every month.

Many of the money problems we see in adults have their roots in childhood. 
So many of us had little or no financial education as kids and grew up into financial illiterate adults. Others had parents who handed down such strict money rules that money strikes fear in them years later and they avoid responsibility. 
One way to stop this pattern repeating itself if you have kids is to start a simple money education as soon as they are old enough to reach up and hand their pennies over the sweetie counter. The moneyasyougrow site is a good place to start; there are also lots of tips in Sheconomics.

Wardrobe Under Construction…and On a Budget

We are thrilled to have this guest blog from Jennifer Baumgarter, Psy.D. 

Jennifer is author of You Are What You Wear: What your clothes reveal about you. Here she shows you how to manage your wardrobe wisely.

These are tough financial times that we live in, but having a small budget does not mean that we need to skimp on style. Contrary to popular belief, you can build a fabulous wardrobe without compromising your credit! Here's how:

• Assess and Clean the Slate: The best wardrobes are built on items that are already in your closet. Before you shop, examine what you already have. Keep what works for your lifestyle, age, body, and coloring, and what actually makes you feel good. Remove anything that does not work with other pieces in your closet, has not been worn, does not work with your external self, and does not enhance the internal. The clothes that you choose to sell or consign will give you the seed money for new pieces.

• Find Your Look and Stick to It: Don’t walk out the door to shop until you know what your look will be. Use the pieces that remain in your wardrobe as a guide. Determine what your wardrobe classics are, not the ones that you are told are classic. If you are still having trouble, take the time to create a style file with magazine pictures or online images. You will notice a pattern of items and looks that you prefer, and it is those that you should shop for. Anything that doesn’t fit within your look, whether it be colourful or monochromatic, classic or trendy, safari or nautical, should not be purchased. This ensures that all items work together, and you will actually get wear out of what you buy.

• Less is More: Paradoxically, the fewer pieces you have in your wardrobe the more options you have. Spearheaded by Donna Karan in the 1980s, a capsule collection was composed of the least amount of pieces that would create the most outfit options. When you are on a budget you should focus on capsule pieces, such as a sheath dress, jean, blazer, or trousers, that will work in all seasons, for different events, throughout weight fluctuations, etc. These pieces must be multipurpose and multifunctional…and machine washable! If you must change things up for the season or trend, switch your shoes, jewellery, handbags, and other accessories that are often less expensive items.

• Shop Smart: Before you swipe that card or take out that cash, answer one question as objectively as you can: Is this item a need or a want? If it is a want, and you are concerned about your budget, put the item back. If the item is a need, buy if you are able to afford it. When buying during sales or in discount or second hand stores, where you may be more tempted to buy inexpensive items, ask the same question. This also holds true when shopping with friends or sales associates who might influence you to buy items when you don’t truly need them. Treating oneself is important, but if your financial situation does not allow for extravagances, buying out of want is merely a waste of money that is better suited for a need.

Read more on Jennifer's blog on The Psychology of Dress here. 

Follow Jennifer on Twitter: @drjennyb

It's panic-now-pay-later week. Would you credit it?

This week is panic week. 

The week when we panic-buy those extra presents (just in case she buys me one), that extra food (can't have too many mince pies) and drink (come on, it is Christmas after all). That extra ton of tinsel and kilometre of lights.

And the panic-buyer's best friend is their credit card. Knowing you can panic-now pay-later makes it all too easy to slip those extra goodies into the basket.

But how much will credit card debt cost you if you only make the minimum repayment on your card?

Test how much you know with this simple question, taken from Martin Lewis's brilliant money saving site.

Question:

Your New Year's resolution is to stop borrowing, but you've still £3,000 on a credit card at 17.9% interest. How long will it take to clear if you're making the minimum monthly repayments (the higher of 2% or £5)?

A. In two Christmases time

B. In eight Christmases time

C. In 14 Christmases time

D. In 41 Christmases time

Think about it before scrolling down for the answer.

Mmm...shouldn't have stuck all those presents on my visa card.

The Correct Answer is: 
D. In 41 Christmases time

Staggeringly if you only make the minimum repayments it’ll take over 41 years to repay the card at an interest cost of £6,300. Minimum repayments are designed to keep you in debt. Think about it 17.9% interest a year is about one and a half percent a month – the minimum payment is 2%, so you’re not doing much more than servicing the interest.

Further Info: See the money saving expert's full Minimum Repayment Calculator which includes a guide to beating the trap.

If this doesn't apply to you but you know someone who needs help keeping their spending under control, a copy of Sheconomics could be the prefect present.

10 easy money actions for the financially challenged

...or the financial phobic.

None of these are scary. Or difficult.  But they could make a huge difference to your financial health.

Decide how many of them you will tick off this year: 

1.    Get on-line banking (if you haven’t already). Stick a weekly reminder in your diary to check your statement. Marvel at (or bemoan) where the money goes. Tackle leaks.

2.    Charity shop. Devise a whole new image based on charity shop finds. You can always restyle or dye stuff. Fashion victim = financial failure.

3.    Perform some plastic surgery. Cut up credit cards and just use cash. Slash and burn store cards, show them no mercy.

4.    Learn about compound interest. It’s how investments grow and why debts go ballistic. Spend 5 minutes getting to grips with it here. Feel immediately enlightened. Smug even.

5.    Sweep some money into a savings account. Every month. Do it by direct debit. You won’t miss it going out but you’ll love it piling up.

6.    Ask someone for money. Now. Nag your boss for a rise. Call in debts. Haggle for a discount on your next purchase. Take something back, demand a refund.

7.    Make kids earn money. Stop being their cash cow. Make them get a job or sell old toys on eBay. Threaten to charge them rent. If they’re over 18 charge them rent. Be less tough on toddlers.

8.    Deal with credit card debt. Transfer to a 0% interest card. If your savings earn less interest than you’re paying on your card, use them to pay off the debt.

9.    Play the long game. Give your future self a gift. Boost pension payments (or start one). Over-pay on the mortgage. Take out a 5 or 10 year high-interest investment.

10.  Stem the flow of wasted money. Unused gym memberships. Forgotten magazine subscriptions. Thirsty cars. Taxi/takeaway/smoking/alcohol habits. Put what you save into a separate account, just for you.