How we waste our money

The average Canadian is in debt to the tune of $71,300, or $1.907 trillion nationwide, according to Equifax. While this amount also includes mortgages, we’ve developed a troubling habit of funding our lifestyles with credit cards.

Online shopping with “one-click pay” makes easy to spend impulsively. According to a 2018 study by Environics Analytics, Canadians dropped over $41 billion online with apparel, jewelry, electronics, children’s toys, and entertainment being top categories. Groceries and health and beauty products spend totaled $6.4 and $6 billion, respectively.

Shopping under the influence

There’s no getting around it – everyone has to shop. But shopping should come with a warning label. We make unplanned purchases for different reasons: a bad day at work, feeling sad or lonely, after a fight with our partner, being tired or stressed, comparing ourselves to others, and so on. That’s why it’s called retail therapy!

And it works— temporarily. Treating ourselves gives immediate comfort but it doesn’t solve the underlying issues. A study found that when people watched a sad video, they were willing to spend four times as much for an item than a control group who watched a nature video instead.

Shopping while tired or hungry makes us more susceptible to overspend because we’re suffering from something called ‘ego depletion’. When we’ve used up our willpower on a challenging task, like commuting in traffic or dealing with a difficult colleague, we have less self-control to delay gratification. We’re more likely to overspend to cheer ourselves up. According to a 2017 Canadian survey, the most popular indulgent spend to treat themselves is dining out and food takeout, followed by online shopping, clothing, and beauty services.

Speaking of willpower, a growing trend is to shop while drunk. Studies from the U.S. found that consumers spent more than $30 million in 2018 while drunk, with men’s spending double that of women. Frictionless online shopping makes racking up bills as easy as sipping Pinot Grigio after a long day.

Smart money

Moods are changeable and we can’t always control our circumstances, so we need a strategy for dealing with these unpleasant times. Here are some proven tips:

·       Make it harder to buy by disabling shopping apps from your phone and computer, deleting credit card information from online shopping sites, blocking retailers, and unsubscribing from mailing lists. Everyone with a computer or phone is deluged with pop-up offers to take advantage of “limited-time only” sales and coupon codes. Check out apps that put your online shopping cart “on-ice” for 30 days.

·       If you must shop, confirm the retailer’s return policies, so you can get a timely cash refund if you change your mind.

·       Designate one checking account for ‘retail therapy’ only. This way, you can ‘shop ‘til you drop’ without carrying debt. 

·       Pay attention to environmental or emotional triggers that have led you to make regretful purchases in the past. History doesn’t have to repeat.

·       Get wise to retailers’ tricks. Bundle offers are also a popular gambit. Do you really need all the extras? Do the math first. Discount codes and sale reminders often hit your phone before holidays and weekends.

·       Put a price on it. Review your credit card and bank statements and highlight the impulse purchases and how much they cost you. Were they worth it?

·       Go off-brand. Brand names can cost more than generic brands, and typically with no discernible difference in quality.

Canadian financial educator Kelley Keehn recommends trying the 30-day “anti-budget”. Without making any immediate changes to your spending, simply track where your money goes. She recommends doing this audit twice a year using these general categories: dining out, groceries, transportation, housing, entertainment, alcohol, and gifts.

Also, be on the lookout for these other forms of “money leakage”:

Automatic renewals – Whether magazine subscriptions, cable/video games, gym or other services, set your renewal preferences to manual. This gives you the opportunity to rethink the purchase or negotiate better terms with the provider.

Lotteries – According to Statista, Canadians spent over $10 billion on lottery tickets in 2016. Those small impulse buys add up fast. If you must take a flyer, set a monthly budget and stick to it.

Too much – Having more than we need is a money drain. For example, the more credit cards you have, the more likely you are to overspend, incur annual fees or late fees. Keep a main and spare and ditch the rest. Ditto with home ownership – the bigger the house, the more you spend on decor, repairs, cleaning, etc.

Know thyself – Most people are optimists. Yes, of course, they’ll go to the gym and build stuff in the basement workshop! Be honest with yourself about how you really spend your time—then spend your money accordingly.

Be generous up to a point – Create a budget for gifts or helping family members. Practice saying, ‘no’ if a request could strain your budget and put your long-term financial well-being at risk.

Rita Silvan, CIM™️, is personal finance and investment writer and editor. She is the former editor-in-chief of ELLE Canada magazine and is an award-winning journalist and tv media personality. Rita is the editor-in-chief of Golden Girl Finance, an online magazine focusing on women’s financial success. When not writing about all things financial, Rita explores Toronto’s parks with her standard poodle.

Rita Silvan is a paid spokesperson of Sonnet Insurance.
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