A coworker of mine recently pulled into the parking lot at work in a brand new $30,000 pickup truck. I did a double take because he originally told me that he was taking his old car to a mechanic for a tune-up and to have a rattling sound checked out. When I asked him about the new purchase, he told me that he had been looking around on the dealership’s car lot while waiting on the service department to fix his old car when he fell in love with the new truck. That ended up being an incredibly expensive tune up in the end.
Impulse purchases add up
Even if you’re talking about smaller things, impromptu buying can wind up costing you hundreds of dollars (if not more) each year. Psychologist Paco Underhill estimated in his book, “Why We Buy: The Science of Shopping,” that almost 70% of all of our purchases are unplanned. Years later, University of Pennsylvania Wharton Business School professor David R. Bell conducted follow up research that refined the number of impulse purchases we make to closer to 20% of our total purchases throughout the year.
Even this lower number can add up to quite a substantial amount of money based on the sheer number of purchases that Americans make over the course of a year. One Consumer Reports poll of readers in 2009 found that 60% of the survey’s respondents admitted to buying things on a whim over the past year at a staggering average cost of $108 each time. If you made one impulse purchase per month at that rate over the course of an entire year, you would quickly bust your budget.
Compounding your problems
Bringing your car in for a simple tune up and buying a brand new truck on impulse may only be part of your problem. Many car buyers, like my coworker, compound their problem because they are upside down on their current car loan when they purchase the new car. So, they ultimately roll over the remainder of their old car’s note into their new loan.
If you do this, you’ll not only drive off the dealer’s lot with a car that is depreciating by the minute, but you’re also upside down on your new car from the very beginning. If you have get into a car accident, you could wind up having to pay for a portion of the repairs out of pocket unless you have “gap” insurance in place. Having to add new car insurance policies to protect poor purchasing decisions is not a good way to save on car insurance.
If you know that you’re prone to impulsive purchasing, surrounding yourself with shiny and beautiful new cars is probably not the best idea. There are a few things that you can do to take your mind off of buying a new car when you hit the dealership for a tune-up. For starters, you should consider setting a spending limit with your spouse. To do this, simply define how much you can spend without first discussing the transaction.
If you don’t have a spouse or significant other to bounce the idea off beforehand, consider finding an accountability partner who can be your sounding board for important financial decisions. One of the best things that you can do is vow to sleep on any large purchase for a day or two before committing to it. Often, you will find that your desire for that shiny new whatever will cool off over time.
Finally, remove yourself from the situation before it even takes hold of you. There is nothing that says that you have to stay at the dealership and walk around while your car is getting serviced. Nor do you need to wander the mall for entertainment. If you keep yourself out of these situations in the first place, you’ll avoid the temptation to impulse spend and improve your wallet’s health in the end.
What is the largest purchase that you’ve ever made on an impulse? Looking back, what percentage of items that you buy everyday — at the grocery store for example — do you feel are impulse purchases? I’d love to hear your thoughts on this.