5 ways to cut impulse spending and add to savings accounts

Barbara Marquand | guest writer for GoTalkMoney

by Barbara Marquand

Eighty percent of American adults admit they bought something on impulse in the last year, and among those, 66 percent say they later regretted the purchase, according to an online survey commissioned by the National Endowment for Financial Education and conducted by Harris Interactive in August 2010.

Think you're immune to impulse spending?

Take a look at the pile of cast-offs in your garage or closet and then decide.

Too much impulse spending cuts into your ability to set aside cash in money market accounts and savings accounts for emergencies, not to mention retirement investments. If you don't have at least six months worth of living expenses saved in case of a job loss or other emergency, and you're not setting aside the maximum amount allowed into tax-deferred retirement accounts, then ask yourself whether impulse spending is putting a dent in your finances.

Here are five ways to beat impulse spending:

1. Track your purchases.

Write down everything you spend for a month to see where your money goes, suggests the National Foundation for Credit Counseling. You might be surprised to learn how much you're spending on insignificant stuff and how fast it adds up over the course of a few weeks. Add those purchases up over the course of a year, and you have a tidy sum that could have been stashed in a certificate of deposit.

2. Create a realistic spending plan

List your essential expenses, such as housing food, utilities, rent, insurance and others, and compare that to your income to see how much you have left over for discretionary spending and saving. Don't make the saving plan too strict, or you won't be able to stick with it. The National Foundation for Credit Counseling advises to think in terms of cutting back on extras rather than cutting out.

3. Plan your credit card purchases.

Credit cards make sense for big purchases and online shopping, but their convenience can make it too easy to splurge. If you have trouble sticking to a shopping budget, whether you're stocking up on school clothes for your kid or doing buying weekly groceries, leave your credit cards at home and use cash instead.

4. Find other ways to reward yourself.

Many people spend money as a way to burn off stress or treat themselves for getting through life's daily challenges. If that's the case, find some cheap or free alternatives to relax or give yourself a treat. Seek professional counseling if impulse spending has turned into a compulsive habit you can't tame on your own.

5. Automatic savings

Money that's out of sight is out of mind. Have money automatically deducted from your checking account to a money market account or high-yield savings account every month before you have a chance to spend it.

To highlight the issue of impulse spending, the National Endowment for Financial Education has launched the Spendster Second Chance, an online video confessional where Americans can share stories of impulse buys and poor spending habits. Those with the most popular stories have a chance to win awards from $250 to $1,000. The Spendster site also provides advice for curbing poor spending habits and a calculator that lets you determine how much the money you wasted would be worth had you parked it in a high yield savings account for 40 years. In addition, the calculator tells you how much you'd spend if you charged the purchase on a credit card at 9 percent interest and paid only the minimum payment for a year.

For instance, a $20 impulse buy would cost you $140 on the credit card if only minimum payments were made, and would be worth $240 after 40 years in a high-interest savings account.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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