Researching Purchases
Every person makes hundreds of purchase decisions every month. Think about how many individual items you choose when buying groceries. Which fruits or vegetables will you buy? Which cleaning product will you pick up? What if you need new batteries…
An important step in managing your personal finances is to understand the reasons why you make purchases and to be able to research them ahead of time.
Why We Buy What We Do
Coke or Pepsi? McDonald’s hamburger or KFC chicken? AirBnB rental or an all-inclusive resort?
You make thousands of buying decisions every month about how to spend your money. From the small cheap choices that you barely notice, to large expensive items that you spend a lot of time researching and planning for.
It’s not possible to carefully consider every single purchase you make. This would lead to decision fatigue. Decision fatigue happens because every choice you make takes some brainpower. As you spend more time and effort considering each choice, you get worn out very quickly. This is why most people spend a lot more time researching big ticket purchases than every item in their shopping cart.
When you review your spending, you’ll notice that even your minor purchases add up quickly. That’s why it’s important to understand why you make each of those small purchases too.
Advertising and Spending
Everyone is susceptible to the effects of advertising. Most people think advertising doesn’t affect them very much, but no matter how savvy you are, you will be affected by ads.
When making a decision to buy one product over another, you already have pre-formed opinions about what benefits you will receive compared to the price you’ll pay. Where did these opinions come from? They came from prior experiences where you interacted with the product and formed rational and emotional associations about what that product means to you. Whether you realize it or not, advertising was at work shaping these experiences.
A successful ad is able to do three things. First, it attracts your attention by using specific shapes and colors, featuring attractive looking people wearing nice clothes, with cool music, catchy or funny text and dialogue, so you notice what the company is selling. Next, the ad gets the name of the product, the logo of the brand, or even a color combination stuck in your head. Finally, advertisers put a positive spin on their products to convince you that their product or service will be more beneficial to you than their competitors.
Bringing it all together, good ads will hook your emotions and bypass your rational mind. So the next time you’re out shopping and you see the product on display, you’re more likely to make an impulse purchase instead of comparing it to other products and choosing the one with the best value.
Advertising has the biggest impact on small purchases, where you only spend a few seconds weighing pros and cons. A simple product endorsement from a social media influencer may be the reason you buy Product A instead of Product B.
Previous Experience
Basing your purchase decisions on previous experience is the opposite of advertising. In this case, you’ve used a product in the past, so you know the value relative to cost. Smart shoppers should not rely solely on previous experience to make purchasing decisions. Buying out of habit means you’re not taking the time to compare one product to other available alternatives.
Most of us have an older relative who uses the same products, or are loyal customers to specific businesses for many years; even though newer, better alternatives are now available. This happens because shoppers fall into spending ruts, where a previous positive experience has switched off the part of the decision making process where they ought to be considering what else is available now.
Peer Pressure
When it comes to spending, peer pressure is not always a bad thing. Your friends and family can provide insight into a product or service through their personal experiences, so you can learn what it will be like before spending your money. Getting a product endorsement from someone you trust is one of the best ways to discover whether something is worth buying.
On the other hand, peer pressure can also encourage over-spending. If you’ve spoken about your intention to buy something to multiple friends, chances are each of them will recommend different products and services that they believe are the best. While they may all be right, buying everything they suggest can be detrimental to your budget.
For example, if four of your friends each recommended a different 30-minute TV show you should watch, you could be spending 2 hours watching TV before you get to the ones you actually enjoy watching the most. It’s good to keep an open mind, but also appreciate these recommendations won’t guarantee you’ll have the same experience as they did.
How to Spend Your Time Researching
Researching purchases is mostly a time problem. There are thousands of purchases to consider, but only one of you and only 24 hours in a day. Thankfully, there are some tools that can help you with research that can make the process easier for you.
Use Your Spending Plan or Budget
Before purchasing any item, you should determine what funds you have available. If you have a budget or spending plan in place, this typically involves reviewing your expenses from the previous week or month, and then using those numbers as a reference.
When making future purchases, ask yourself if you could spend less without sacrificing the quality of your experience. For example, you may typically buy certain name-brand products, or you always buy coffee instead of brewing it yourself. Would you prefer having extra cash at the end of the month instead? That might be more valuable to you than your daily drive-thru coffee.
Spend some time reviewing whether the items you buy each month are worth the cost. Research whether there are more affordable alternatives, or if you could live without it altogether. You could also decrease the amount of money you allocate to groceries, clothing or other monthly purchases. That way, the next time you’re in the store, you’ll be forced to think for a few moments before adding random items you don’t really need to your basket. Sometimes this is all it takes to save a lot of money in the long run.
Compare Online as You Shop
Most people have a smartphone with a mobile data plan available; which allows you to do a quick online price check if you see something you like in the store. For items that cost more than $20, it could be worth your time to fact-check whether you’re getting the best deal. You could discover a better alternative at another store, or from an online vendor.
This online price-check provides two major advantages. First, you’ll find out if the price in-store is the best. If the purchase can wait a few days, you can order online and save money. Second, online shopping sites usually provide user reviews from other people who purchased the same products. Most of the time, these reviews are from real customers who can confirm (or deny) the quality, durability and what their experience was like.
Delay Purchases
If you decide you want to buy something, there is a simple trick to help you save a huge amount of money. Delay the purchase. Even if a product is on sale, don’t impulsively buy it just because you want it, and it seems like a good deal.
Have you noticed that ads for products you’ve looked at online seem to follow you around the internet? If you see an item you want but don’t purchase it immediately, the ads will start to display alternatives, which may have lower prices or better reviews than what you initially found. Why not let the internet do the work for you? By waiting, you could also cut out impulse purchases entirely.
According to the DAC Group, Americans make up to 156 impulse purchases every year reaching around $5,400 per year per person! Delaying your purchase by a couple of days kills that impulse. By taking time to think about whether you really want or need it, you not only save money, but the hassle of returning it later if you change your mind.
Be Wary of Sales and Bundles
Let’s pretend you needed a new laptop, and you did your research and discovered the ideal product was available at the right price from a major electronics store. You go to pick it up after carefully reviewing that you made the right choice. Then, at the check-out the salesperson offers you a bundle. The store has a special promotion that will help you set-up your new laptop, a one-year subscription to antivirus software, plus a two-year warranty for accidental damage… all for only $60.
This bundle exists at most electronics stores, and is offered at check-out specifically to give buyers little time to research whether this is providing anything of real value before adding to their bill. This last-minute add-on should raise a red flag. In reality, no part of the bundle was a good deal.
- There is no real set-up process for new computers anymore. Entering your name and logging into your home’s Wi-Fi is usually enough to get started.
- Almost every new computer comes with a trial version of professional antivirus software, which lasts as long as the membership period offered in the bundle. The Windows operating system now includes its own built-in antivirus protection, known as Windows Defender. And free versions of almost every other reputable antivirus exist for extra protection. Apple computer products also have their own free suite of antivirus software to choose from.
- The accidental damage warranty offered by the store was almost identical to the one already included by the manufacturer of the laptop, providing no additional benefit to the customer.
The same is true for almost any bundle offered at any check-out. If a salesperson, or an online store, offers you a time-pressured bundle that doesn’t give you time to research what you’re getting, you’re better off opting out and sticking with the purchase you know you want.
Challenge Questions
- Why is it important to consider comparison shopping?
- Other than price, what other factors should you consider before purchasing something?
- With the use of examples, what do you understand by peer pressure?
- How might delayed gratification and delayed purchases help you with your budgeting?