When it comes to spending, the holidays tend to be our most vulnerable time of year, and businesses that want you to buy their goods and services know this. They will employ the most advanced psychological strategies to trick you into digging deep into your pockets. One of their favorite strategies is known to insiders as the “Nudge”, which can be used to elicit or facilitate certain behavioral outcomes – positive or negative. Here are some ways to harness the power of Jedi-like nudges to protect your personal finances this holiday spending season:
Plan ahead and create guardrails for your vacation spending
When you’re about to expose yourself to the brutal elements of sales strategies, heartbreaking marketing, and product placement, you need to stay focused and present. One way to force yourself to do this is to make a plan and set spending limits based on what you can afford. Here are your next steps:
- Build a spending budget by first looking at your cash flow and any available discretionary savings. Here is a resource that can help you get organized. Think about any other goals you have and any expenses that will need to be made in the next 6-12 months. Then figure out what you can afford to spend on the vacation based on those other priorities. Your goal is to avoid dipping into your emergency savings and incurring debts that cannot be repaid in full by the due date. Finally, write down this number and set it aside in a separate account for vacation expenses.
- Make a list and double check it (sorry, can’t help myself). First, lay down what you need. Then start creating a list of what you want. Then add who you plan to spend on and what you would like to get.
- Now add an estimated cost to each, add them up, and subtract that number from your budget. If the result is positive, you are ready. If it’s negative, you’ll need to decide how you’re going to reduce. Consider prioritizing your needs first, then identifying the highest priority people in your gift pool. If necessary, consider the Secret Santa option, as it’s better to spend $50 for one person than $250 for a family or group of friends of five!
Add obstacles to your spending
One of the most brilliant nudges companies have employed is removing barriers to spending. You see it as a convenience. They see it as a huge boost in sales. Here are some steps you can take that will help you turn the tide in your favor:
- Disable purchases in 1 click. Yeah, I said it. The king of convenience is one of the reasons we overspend. Do you think you will just return the goods you regret and get a credit? Thanks to the law of inertia, the probability of this happening is not in your favor.
- Make it harder to spend. The more steps you add, the more time you give yourself to think about the decision and weaken the impulsive response. Consider setting up a one-day rule or, if it’s a cyber deal, a 30-minute rule so you have time to think before hitting “Buy.” To take it a step further, consider having to physically enter your payment information each time you make a purchase. Adding friction to your spending will make it easier for you to stick to your budget.
- Remove the sense of urgency, whether it’s a holiday gift or something you need to replace in your home (TV, appliances, etc.). Prices have become more variable during Black Friday and Cyber Monday and beyond. Many more stores also respect price matching. Remember to stay focused on your budget and vacation priorities. If you aren’t convinced by an offer or don’t really “need” this item, consider putting it on hold and using a price comparison app like one of these to enter an offer when you’re ready.
Think about your future self
Taking a moment to think about your future before hitting “submit order” can be a powerful way to control your spending. Dan Pink calls it the power of regret. Try to leverage this thinking for every buying decision you’re about to make by asking yourself the following questions:
- Will this decision break my budget?
- If so, how will my future self feel about it?
- How will this hurt my goals or the future I’m trying to create?
- How will successfully sticking to my budget help my future self?
you have this
Hopefully, these strategies can help give you the positive boost you need to avoid falling into the holiday spending trap. This way, you can stress less now, have more money for the future, and enjoy the gift(s). Happy Holidays!
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