Recovering After Impulsive Spending
After the dopamine rush of an impulsive purchase, you may feel a moment of guilt, questioning your actions. For some, the quickest way out of this uncomfortable feeling may be to find another purchase to make, in hopes of that same dopamine rush. If you’ve already blown your budget or racked up some credit card debt, it’s easy to think “What’s the harm in a little more?”.
Or maybe an unplanned expense leaves you feeling ashamed and sends you into a spiral about how “bad with money” you are.
While some of us are more prone to impulsive spending than others, having a plan for how to react when it does inevitably happen can help reduce any negative consequences that may come from it. It can also enable you to identify your spending patterns and triggers, empowering you to make better decisions going forward.
Pause
Once you realize that your spending has gotten a little out of control, the first thing to do is pause and take a deep breath.
If you’ve blown the budget or racked up some credit card debt, you may feel like “Well, f*$k it, I’ve already blown the budget, I might as well keep going”. While this reaction is common, the sooner you can stop the spending spree, the less damage you will have to recover from.
By pausing and taking a deep breath you can stop the spending momentum. The pause makes it easier to avoid impulsive or emotionally charged decisions.
Assess the damage
Next, you’ll want to get clear on what has actually happened. So many emotions are connected to how we handle money. You may feel a lot of guilt and shame for having spent even just a few dollars wastefully. Or, on the flip side, you might be subconsciously downplaying the reality of a huge purchase, in an effort to protect yourself.
Either way, before you can figure out how to navigate going forward, it’s important to understand the actual impact of your spending.
A few questions to ask yourself:
How much have I actually spent?
Are there any immediate consequences for these expenses?
Did you overdraw your checking account?
Did you increase your credit card debt balance?
Will you struggle to make your rent payment next week?
Is any of it returnable?
Is this an ongoing cost with recurring payments?
Is this a one-time expense? Or did you sign up for a subscription or long-term payment plan?
Are there related or follow-up costs?
If you’ve bought a new car, you’ll will have the added expenses like car insurance and recurring maintenance. If you adopted a new puppy, don’t forget about the ongoing food costs and inevitable vet bills.
Separating the feelings that a new expense generates from the actual financial impact is important.
Create a plan for getting back on track
Depending on the scale of your spending, and the cushion in your bank account, the amount of time it takes to get back on track will vary. If the expenses have been put onto a credit card, it’s important to have a plan for paying the balance off. The longer the balance goes unpaid, the more interest you will have to pay, and in a sense the more this indulgence has cost you.
Let’s say you spent $1,000 on clothes this weekend and put all of the purchases on a new credit card with a 28% APR. If you are able to pay your card off in full at the end of the statement period, fantastic. However, if you are only able to make $25 monthly payments on that card, it will take you nearly 10 years of $25/month payments to pay off the balance. Over that time you will have paid a total of $2,935 ($1,000 for the original purchases + $1,935 in interest charges).
Alternatively, if you can commit to $100 monthly payments, it will only take you a year to pay it off, and in that time you will only get hit with $152 in interest charges.
So even if you can’t pay the balance off right away, avoid settling for just making the minimum payments, otherwise these expenses will end up costing you a lot more in the long run.
Ways to help you get back on track:
Are there other expenses you can cut out, or cut back on, for a while until you are caught up?
Are there ways to generate more income?
Is there anything you can sell?
Identify what caused the overspending
The often overlooked step of reflecting on WHY the spending spree happened, may be the most important step. Understanding what prompted it can help reduce the likelihood that it will happen again. There is a wide range of things that might trigger a spending spree or impulse purchase. The more you understand what triggers impact you, the better you can create a plan to either avoid them or develop other coping strategies
Did a particular emotion lead to the spending?
Was there an event or occurrence that prompted it?
Are there specific people who encourage you to spend more loosely?
For most of us, there are specific scenarios that often precede impulsive spending. While you might not be able to completely avoid some of those situations, with a better understanding of how those situations or feelings impact you, it’s easier to notice the link between those situations and your spending. With increased awareness, you are more likely to recognize in the moment what is going on, and hopefully pause to evaluate if this purchase is actually in your best interest, or just a quick dopamine hit to help you cope with an uncomfortable feeling.
Understanding what prompts your spending behavior is a key piece to shifting how you approach spending in the future, but making lasting change is easier said than done. If you’d like support in exploring your spending habits and developing strategies to keep your spending more in line with your values and goals, schedule a call to learn more about 1:1 financial coaching options.
