Mindful spending: 6 financial questions to ask yourself
Have you ever wondered how people find themselves in serious debt? When most people think of debt, they tend to think of sudden and unexpected life changes. From unexpected unemployment or the ill health of you or a family member, to a crippling bereavement or sudden mental health issues, people find themselves using credit cards or loans to cover the day-to-day costs of living. This habit can quickly spiral into serious debt if not monitored carefully.
Impulsive behaviour and debt…
However, not all debt is caused by sudden life changes. For many, a gradual build up of credit and debt occurs over a long period of time. The modern phenomenon of ‘sleepwalking into debt’, has become all too common, with our 21st century consumerism making it easy to buy goods and services on credit. From opening lines of credit with online fashion retailers in just minutes to securing expensive finance deals on luxury cars from a young age, it’s all too easy to fall into debt, especially if you find yourself shopping impulsively
Here at Galahad, we’ve created a series of questions you should ask yourself before making a purchase to help you to decide whether it’s a good idea or not.
Can I afford this item/service?
It may sound painfully obvious, but in today’s world of credit cards, loans and in-store ‘buy now, pay later’ credit options, getting carried away at the checkout and making impulsive purchases without properly thinking about the financial consequences later down the line is all too easy.
That’s why when you’re considering making a purchase, before doing anything else, it is important to stop and take a moment to ask yourself whether or not you can actually afford the item/service you’re thinking of buying. If you have the cash available to make the purchase and will still be able to afford your regular living costs – your rent/mortgage payments, bills, cost of food, etc – you can probably afford it. If, however, you require additional credit or a loan to help with the purchase, it is likely you can’t afford it. It’s that simple.
Is this purchase a ‘need’ or a ‘want’?
While not everything you consider buying needs to be a ‘priority’, if you’re in debt and considering any significant purchases, it certainly helps to be more selective. Simply taking a second to really think about a purchase before impulsively checking out helps you to rationally decide whether you actually need the item or if it’s something you just want – in other words, an impulsive luxury purchase.
Although this sounds basic, this process is not always as straightforward as you think. Some people would argue that other than shelter and food, no purchase is a ‘priority’. However, this is clearly not true – paying for broadband, mobile phone bills and laptop repairs, for example, could represent an essential lifeline to those working from home or self-isolating due to the pandemic. On the other hand, it’s unlikely you really need a state-of-the-art flat-screen TV or the latest designer handbag.
Will I still want to make this purchase after leaving it 24 hours?
Learning to rein in your impulsivity can be a key part of climbing out of debt. After all, many of the purchases we make, particularly small day-to-day purchases, are made on the spur of the moment. Although not a great habit to fall into, especially if you are already in debt, this is usually fairly harmless. However, if this behaviour starts to impact the way you make more significant financial decisions, relating to more expensive purchases, you can easily sleepwalk into serious debt.
One way to combat this is ask yourself if you can easily get by without the item/service before fully committing to a purchase. If possible, go away and sleep on it. You may find that you are able to make a much more rational decision about a purchase – potentially even deciding that you don’t need the item/service at all – when you’ve had time to think. If, after 24 hours, you still believe the purchase is necessary, at least you’ve taken the time to properly consider it.
If essential, can this purchase be found cheaper somewhere else?
If you have decided that a certain purchase is necessary, and you have the means to afford it, the next question you should ask yourself is – are you getting the best deal you can? No matter what you’re buying – from a new car or TV to an improved mobile phone or broadband – resisting the impulsive buy and actually shopping around for the best deal is essential.
Prices and rates for everything can vary widely depending on the store or provider, so taking that little extra time and finding the best deal could save you a lot of money.
How will this affect my budget for the rest of the month?
If you have just been paid or had your overdraft/credit limit extended, for example, it’s easy to think short-term and make expensive, impulsive purchases. This is why, even if you can afford the cost of a certain purchase at the time, it’s also vitally important to look beyond the price tag and ask yourself what is the real cost of this item/service before committing financially.
If you stop and think about what your financial situation and personal budget will look like at the end of the month – or a few months down the line – the true cost of a purchase will reveal itself, and there’s a good chance you might decide it’s not worth it.
How long will this take for me to financially recover from?
So, you have found the perfect item/service you’ve been looking for, you think you can afford it without it impacting your monthly budget, perhaps with the help of additional credit or loans, and you are about to complete the purchase. STOP!
The final question you should always ask yourself before passing the point of no return when making a significant financial decision is – worst case scenario, how long would it take me to recover from this purchase? If you’re a cash buyer and have the money to spare, that’s fine. However, this question is key if you are already servicing a number of debts in the form of credit card bills and/or loans. While you may be able to afford the purchase right now, and even think you’ll be able to comfortably service your debt repayments at the end of the month and for the foreseeable future, you never know what’s just around the corner. A sudden change in life circumstances could make your debt unserviceable, and the additional pressure of a potentially unnecessary large purchase could make this situation even worse. For this reason, asking yourself and understanding exactly how long it will take you to fully pay for a purchase is vital.
Sleepwalking into debt is all too easy nowadays, however, by asking yourself these six simple questions before making any significant purchasing decisions, you can break the habit of impulsive buying and protect yourself from falling into serious debt.
What questions do you ask yourself or acts of financial mindfulness do you practise when weighing up a purchase and managing personal debt? Here at Galahad & Co we’d love to hear your suggestions – join the conversation using the hashtag #MindfulSpending.