Finance Roll

How many of these strike a chord?:

1. Are the words "You spent HOW MUCH!?!" a familiar part of your dinner conversation?

2. Do you call your credit card company each month and accuse them of sending you someone else's - much bigger - bill?

3. Does your closet look more like a department store than a storage space for a single person's wardrobe?

4. Did you stand in line to buy an iPhone, Wii, x-box or any other recently upgraded technology gadget even though you have the last 3 versions - plus all the add-ons - at home collecting dust?

5. Did you buy that "must-have" entire new outfit even though you only went into the store for a pair of socks?

If you chuckled, then blushed, then hung your head a bit at any of the above, odds are good you have a spending problem.

While a spending problem is not a good thing to have at any time, in these financial times it's even worse. If you can't control your spending it probably means that you're not in control of the other areas of your financial life including savings, retirement, paying off debt, etc. which can have drastic and far reaching consequences.

To add insult to injury, impulse spending can damage not only your finances but also your relationships. Being in a relationship with someone who is consistently irresponsible can be tiresome and the fact that money is a leading cause of divorce only proves the point that not being able to manage your money can have a negative impact on your romantic life.

Impulse spending is usually caused by a lack of something else in your life. You may be bored, or unhappy, or avoiding making a decision about something and buying yourself a treat can be a great diversion. Figuring out why you spend is as important as learning how not to spend because unless you solve the root problem, this will always be a challenge in your life. That said, this is a personal finance article, not a psychology article so while I can't help you get to the root of the problem, I can give you some tips on how to get it under control.

From the moment we wake up until the moment we go to bed we are hit with an endless barrage of advertising telling us that we need newer, bigger, better stuff in our life in order to be happy. Eventually you need to learn how to tune those messages out but until then, here are a few things you can do to cut the impulse off at the knees.

1 - Learn to separate a need from a want. Basically, a need is anything that, if you don't have it, you will die. These include: water, basic food, basic shelter and basic clothing. Dinner out at 4 star restaurants and new designer clothes do not fall under the needs category. They are wants. Wants are anything that, while you won't die if you don't have them, they may help make your life happier or more comfortable. Once you really start to be honest with yourself about what is a need vs. what is a want, making purchasing decisions will get easier.

2 - Set a budget. Figure out how much disposable income you have to spend each day and only carry that much. If what you want to buy costs more than what you're carrying with you, you can't buy it. This means leave your credit/debit cards at home. There is no reason for you to carry a card with you unless you are making a pre-planned purchase that you've saved up for. Instead, put them into a drawer and leave them there. If that's still too easy to access, put them into a bowl of water and throw it in the freezer. They'll have to defrost before you'll be able to use them for anything.

3 - Shop from a list and don't deviate from that list. It sounds simple but you'd be surprised at how many people don't use a list when they're shopping. This means that not only do they waste a ton of time wandering a store looking around they also waste a lot of money buying things they don't need. If, while you're shopping, you see something you want, write it down on the back of your list and add it to the list of things you want to buy next time. Typically, when next time rolls around that item no longer looks so interesting and you will end up passing.

4 - Set goals for yourself and save for them. Delayed gratification sounds boring but really it's much more satisfying. If you know that you've had to save for weeks/months for something you are much more likely to truly enjoy that purchase.

5 - If you're in a relationship, make a mutual rule that any unplanned purchase over $x has to be pre-approved by all members of the family. This will help to ensure that everyone is on the same page about spending and will help the financial communication that is necessary for a healthy relationship.

6 - Finally, if all those things don't help, keep this in mind any time you have the urge to spend money: If you take the money you're about to spend and instead invest it at an average of 10%/year for 30 years you would have 10 times more than you're spending. So, if you have the urge to buy a new $250 phone even though your current phone works just fine, ask yourself if that phone is worth $2500 because in reality that is what it's going to cost you. And actually, if you put it on a credit card and don't pay it off immediately it will cost you even more.