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Use the ‘Rule of 0’ to Understand and Defeat the Impulse Buying Definition

Have you ever found yourself sitting in lie at a store and suddenly you see it – the item that you never knew you wanted and now you have to have it! So, you buy that Coke, Doritos, Snickers, etc., just because it was convenient. You didn’t need it, you wanted it. It’s an easy trap to fall into, and that’s why it’s imperative to understand the impulse buying definition.

For the “book” definition, I think that the Economic Times says it best, “Impulsive buying is the tendency of a customer to buy goods and services without planning in advance. When a customer takes such buying decisions at the spur of the moment, it is usually triggered by emotions and feelings.

Personally, it happens to me every time that I go grocery shopping on Sunday mornings. The last thing that I walk by before I get in line to checkout is that little rotisserie chicken area. Do you know what I am talking about?

It’s this little stand that has premade rotisserie chickens that I can just grab and go.

While the chickens are good, they’re not something that will make me salivate, but do you know what they do? They save me time!

I just spent my Sunday morning grocery shopping. The last thing that I want to do is go home and cook to have lunch ready. Instead, why not just buy one of these chickens and then I can just put some of the meat and lettuce into a tortilla and call it a day. Seems easy enough to me!

And sometimes I am literally waiting in line for a half hour to checkout – now I am really mad and don’t want to cook. Fine, I’ll buy one.

Do you realize what I just did? I fell prey to impulse buying. I bought something that wasn’t on my list purely because the emotions got the best of me. I started to think about how nice it would be to save that time so I simply just opted to take the easy way out.

But here’s the thing – I meal prep every single week for my wife and I. So, I didn’t really save time. All that happened is that now I don’t have to cook our grilled chicken for the week before Sunday lunch but rather just need to have it done Sunday night to make lunches for the week.

So… I saved myself like, 5 hours. Or, procrastinated by 5 hours is really the better way to say it, and I had to PAY to do it!

While this situation is only for a $7 rotisserie chicken, impulse buying is not limited to that. Have you found yourself shopping for a certain piece of clothing and then you find something completely different that you have to buy because it’s “on sale”? I know I have.

I wanted a box of golf balls but ended up leaving the store with a new hat ($30) and polo ($40). I convinced myself that it would be the one hat that I bought that year and that I needed new polos anyway, so what’s the harm?

Well, the harm is that it was an unplanned purchase. It wasn’t in my budget and I was creating bad habits for immediate gratification,

For those that do not know, I am a HUGE budgeting nerd and absolutely love everything about the process. In fact, I love it so much that I have shared my spreadsheet to others and that has given me a little bit of insight into some of my friend’s budgets and their spending habits as well.

One thing that I have seen is that once people actually start to track their spending, which I think is by far the most important step to staying on budget, they will find that the easiest way to not stay within their planned spending allotments are because they make unplanned purchases.

That can then be boiled down further to one of two situations:

1 – They Simply Didn’t Plan for That Category or Expense that Month

This is very common. When people are first starting to budget, it’s easy to miss certain budget categories like oil changes, home improvements, etc. Things that don’t occur monthly but certainly occur frequently enough to justify as a line item in your budget.

Unfortunately, there are quite a few that are easy to overlook, but let me shed some light and awareness on them for you!

2 – They Were a Victim of Impulse Buying

You know how I just spent that extra $70 on clothing (hat and polo)? What if that wasn’t in my budget this month and then I also had a big medical expense come up that I was actually planning on, but it had me at the very end of my budget?

Now, I am immediately over budget. Even if I needed those clothing items, which I didn’t, I am over this month and am going to have to dip into my savings, cut back on my investments, or make some other decision that I really, really don’t want to make.

It’s a crappy decision to be in and one that was 100% avoidable.

And these are only decisions with clothing and chickens! I literally had a friend that bought a $1000 bed on Amazon Prime day just because their bed was “old”.

What?

Were you going to get a new one? Had you been planning to buy a new bed? How do you just swing a $1000 expense that you surely didn’t account for going into the month because your bed was “old” and you saw one on sale?

And I’m not even getting into the fact that it was an online bed that he had never used before. Mind blowing. Truly mind blowing on the decision making, or lack thereof.

The issue with impulse buying is that the temptation is literally always going to be there. The way that you’re going to be able to avoid it is by nothing other than training and a little education.

“Education – what else do I need to know?”

Well, silly, you need to know the Rule of 0, of course.

This “Rule of 0” is something that I have created as a way for me to avoiding impulse buying. It’s very simple, and one that should hopefully hit home pretty hard. Let’s get into it!

Imagine this situation…

You’re sitting in the checkout line at TJ Maxx and you’re eyeing all of those delicious looking snacks that they have piled up in their checkout line.

You set your eyes on the peanut brittle for $4. You cave. You bought it. $4 less that you have now all because you were a victim to impulse buying.

But here’s the question – would you have bought that peanut brittle if it was $40? I’m guessing not.

“Ok, Andy…yes, I wouldn’t have paid 10X the price in this hypothetical example – so what?”

But here’s the thing – you actually did pay 10X. Let me explain…

I always talk about my own Financial Order of Operations which is basically a priority list of where I need to be putting my money to work. So, whether it’s a bonus, some side hustle income, birthday gifts or even just some extra money at the end of the month that I budgeted and didn’t use, it will be utilized in the following order:

  1. Max out 401k company match
  2. Max out HSA
  3. Contribute $X/paycheck to a 529 for our son
  4. Contribute $X/paycheck to our Non-Emergency Major Purchases fund
  5. Max out Roth IRA
  6. If any excess money, put into the savings account or a brokerage account

The first four categories are things that are setup at the beginning of the year and never change, pending an unexpected job change or something tragic, so we will usually skip all the way to item #5 – Max out Roth IRA.

Well, that’s a retirement account and since I am 30, I have 30 more years of investing before I can even touch that money since you’re required to be 59 ½ years old.

Do you know what would happen if I just took that $4 that I spent on peanut brittle and instead invested it in my Roth IRA?

Yep, you guessed it – $40!

Don’t believe me? Check it out below:

And that’s exactly why it’s called the “Rule of 0”. All that you have to do is simply add a ‘0’ to the end of the price of whatever you’re buying and then you can truly evaluate the impact of the decision that you’re making.

Even if you had room in your budget for that $4 peanut brittle, would you still trade that for $40 in retirement? I know that I absolutely wouldn’t make that trade.

So much of personal finance and investing is all about mindset. Investing isn’t hard – literally anyone can open up a Roth IRA and put that into a S&P 500 index fund like SPY in less than 10 minutes. The thing that kills people is when the market crashes and they sell. Or, they choose not to budget and instead spend their money on stupid, tangible items that hold no value. Or, they will borrow from a 401k to buy a car or something that just becomes less and less valuable.

You see – it’s all psychological. I believe that we’re created and nurtured to crave instant gratification and that’s what hurts us in our personal finance journey.

You can either be eating some peanut brittle in 30 seconds or have $40 in 30 years…I mean, you might not even be alive in 30 years, right?

While that certainly might be true, are you actually leaving anything on the table by not partaking in this impulse buy? Do you want the peanut brittle THAT bad? If so, buy it!

If you really see the value then you should buy it. Don’t deprive yourself. But you didn’t want it until you saw it in the checkout line, so I would question you pretty hard if you say that you really did want it.

I’m not telling you to deprive yourself – I am telling you to simply establish a baseline further than just wants and needs. In addition to wants and needs, find out the things that you actually really, really want and the things you just somewhat want because you just saw it and it’s convenient.

You don’t have to avoid the wants. Just avoid the wants that actually don’t bring a ton of value.

It might not seem like much, but a $7 rotisserie chicken, every single week, for 52 weeks in a year, is equivalent to $364 in that year. Again, not a huge amount of money because it is food that I am buying so it’s not like it’s wasteful, but it’s much more expensive than buying raw chicken and cooking that.

But that $364 would be $3,640 in retirement! And that’s just from freaking chicken!!!

Now, imagine if you did this with other things as well, such as my clothing example. That one hat and shirt would’ve been $700 in retirement. What if you make an impulse decision to go watch your team play a sports game for $100?

Was it worth $1000 in retirement? If so, do it! If not, stay away, my friend!

The Rule of 0 is a very simple rule that anyone can use to help them make better decisions, and it’s based off some pretty conservative estimates of a 30-year time horizon and 8% annual returns.

Even if you’re 50, it is not at all unlikely that you’re going to live into your 80’s meaning that you’re going to have more than 30 years of investing left in your life!

And 8% returns are pretty low when the S&P 500 has averaged about 10% over the past 100 years or so, but that’s me – Mr. Conservative!

The important thing to takeaway from this is that your impulse buying has a MAJOR impact on your future life and your future ability to spend money. Instead of letting these stupid impulse buys ruin your retirement, keep the Rule of 0 in mind and practice living that minimalist lifestyle!