Silently, most people want to be millionaires, tasting that financial freedom where the price tag doesn’t matter. This moves them onto the saving highway where they must overcome bad spending habits. Some of these habits are so intrinsic that it is hard to let them go.
A recent report in Money Geek showed that the average American only saved 3.2% of their salary or income. Using the median weekly salary of $1,145, it would take 525 years to reach a million. And that would explain why over 30% of Americans had no retirement savings in 2023.
One of the things you must keep clear is that you can save your way to a millionaire. According to a CNBC report, a total of 500,000 new millionaires were created in 2023, in the United States. What do all these newbies have in common?
An investigation published by Forbes identified the three principal ways by which people become millionaires. The report cited “disciplined savings” as the number one contributing factor. Here are four spending habits that could derail your financial ambition.
#1 Spaving – King of Bad Spending Habits
This term is still relatively new to most surfers but defines the process of spending more to save. The word is a convergence of ‘spend’ and ‘save’ which contradict each other. It is not possible to spend more to save.
One important tidbit that shoppers should bear in mind is that all promotions are geared to increase earnings by the merchant. These companies hire experts to ensure that they do not lose profits. The aim is to sell more products, even if they reduce the profit margin a bit.
In the CNBC article, the author points out that some buyers have no idea when it is happening. “ If you have ever added an extra item to your cart just to get free shipping, you have fallen victim to what is known as “spaving.”
Another well-known example entails offers such as “two for one” or using a meter in your shopping cart to show when it is “free shopping spree” time. In the end, you ended up spending more than you budgeted.
However, you can easily identify some of these offers by looking out for the spaving phrases. All these leave the shopper with a sense of urgency to buy or on the verge of losing the deal of a lifetime. They sometimes follow these spending habits completely unawares.
- ‘One day only’
- ‘Limited time’
- ‘Daily deal’
- ‘Flash sale’
When you spave you put your financial plans at risk. You exchange a short-term saving benefit for more money. This may include free shipping if you add another item, or bundled purchases that include items you don’t need.
However, few shoppers pause to calculate the difference and end up spending $30 to save $5.50 on shipping.
How to Eliminate the Spaving Spending Habits
Like many other savers, you can remove the spaving hurdle. One of the recommendations given by Money Line is to “set a budget and stick to it.” However, we have all gone down that road and soon discovered that it is easier said than done. (Even though it is worth the while if you can). Here are three other tips that should help.
- Shop with a list and cash: Most people will enter a store just to fetch a few things and leave with a shopping cart full of groceries! Making a list will help you buy the things you need. However, the big push is to carry enough cash to cover your list.
- Embrace the silence: Sometimes we help spavers by receiving tons of discount offers. Unsubscribing from these announcements will eliminate the source of spaving.
- Procrastinate: Why not? Each time you find an offer that invites you to spend more to save, sleep on it. No matter how tempting it is, give it that 24-hour window.
Once you have removed the spaving signals from your spending habits, you can travel more easily on your financial highway.
#2: The Bandwagon Effect
Among detrimental spending habits that people often adopt, one of them is related to trending. According to Investopedia, “the bandwagon effect is a psychological phenomenon in which people do something primarily because other people are doing it, regardless of their own beliefs, which they may ignore or override where you follow the herd and buy whatever others are buying.”
Although it may be a common teenage pattern, adults are also drawn to the effects of fads and fashion. A wide array of services and products are suddenly important and necessary, just because it’s popular. Whether it be the new TV models, the latest cars, or even streaming services – these can hijack your saving goals.
One notable explanation for this social phenomenon is called the heuristics effect, or simply the brain taking shortcuts. Since the human brain likes to get to the best answer in the fastest way possible, it tends to accept repetitive actions as correct.
This means that the more people are doing something, the more appropriate it will appear to the mind. The process has caused large financial chaos over the years. Known examples were the ‘Dot Com” crash, the Bitcoin crisis, and the housing crisis in 2007.
How to Avoid Spending Habits Like the Bandwagon Effect
The first step is to recognize that although there are some positive sides to the bandwagon economy, it can be disastrous to your financial security. Just as the housing crisis created the 2007-2009 recession, it can damage complete communities or sensitive [personal economies.
Fortunately, it can be avoided or reduced. These three steps are recommended by Investopedia.
- Think Critically: Do not be afraid to be different. Remember that your situation is unique and this bandwagon may not be conducive to your financial plan. Even when it seems so tempting.
- Find reliable sources of information: When in doubt, it is always recommended to consult with reputable and vetted sources. Doing a little research could save you financial woes down the road.
- Relax and take your time: After investigating the details, take a break from the noise. Sleep on it, but never make financial decisions in a rush. Always remember that procrastinating financial decisions, always open new insights.
Participating in financial investments is an essential phase of personal economic growth. However, this decision should never be taken simply because everyone else is doing it. Staying clear of the bandwagon can provide financial stability in the long run.
#3: No-Show or Cancellation Fees
Some spending habits are easier to eliminate or control than others. Even so, they reduce savings and pose potential headaches especially if the user is unaware. These are fees charged by companies to their clients for canceling appointments or simply failing to appear.
According to TripAdvisor, most airlines have these measures in place. “Typically, if you no-show, you lose the value of the ticket but there’s no additional charge. If you cancel, then sometimes depending on the fare class you’ll get to keep the value of the ticket less any cancellation charge. So it’s usually better to cancel because you might get some credit back”
Canceling seems to be holding out better than no-shows in most industries. One beauty podcast speaker pointed out “Such fees are catching on among beauty professionals, for example; they amounted to 16% on Square’s payment platform in 2023, up from 5% in 2021.”
Canceling or No Show Can Be Costly
The percentage increase is alarming but the real question is who is losing these fees. However, the results were significantly higher in the health industry. A report by the American Medical Informatics Association in 2018 showed a 32% no-show in appointments.
Citing the report, one of the main causes for no-shows is the ease it offers. Clients do not have to do anything on their part. It is effortless compared to a cancellation. However, this means losing money and they do add up over time.
Here are three tips that will help reduce the chance of no-shows or cancellations.
- Use an automated reminder system for appointments. Google and Microsoft offer free programs that will pop up reminders in a timely manner.
- Use multiple reminder methods in case one fails, the other will be a backup.
- Try to use shorter time spans between scheduling and the appointment date.
Like all other leaks in our financial plans, no-shows or cancellations reduce the amount we could save.
#4: Impulse Purchasing
In the CNBC report, the writer shares a great definition of impulse shopping. The article says “An impulse purchase is made in the spur of the moment without any forethought or planning. While it’s often associated with smaller purchases like snacks, impulse buying can also be seen in big-ticket items like a last-minute getaway or a car you simply intended to test drive. “
Truth is, impulse buying is dangerous to any saving plan in that you ignore your budget and buy on the spur of the moment. Even armed with a shopping list, people can end up buying things that they had no plans to acquire. It is almost an irresistible urge to purchase that item and ranks high among bad spending habits.
Another issue with impulsive spending has to do with credit card debts. A recent research by Statista showed that an average of 30% of Americans bought on impulse using their credit cards. Some of the items, like shoes and household items, ran below 30%, however, items like clothing, had an impressive 35%.
How to Avoid Purchasing on Impulse
Notably, since impulse buying can be emotional, it is not that easy to avoid. Nonetheless, it can be overcome. An article by Bankrate offers five ways to escape this habit.
- “Reflect before purchasing,
- “Stick to a shopping list,
- “Implement the 24-hour rule,
- “Unfollow accounts that fuel your temptation,
- “Prioritize clear financial goals for long-term gratification.”
Achieving your financial goals requires disciplined saving practices, even if you don’t plan on becoming a millionaire. By exerting control over your spending habits, you will enhance your financial security.
