Cash in the Trash

When it comes to saving more, forget about cutting out the daily lattes for a moment. Think about how much cash you throw away each year on things you rarely—if ever—use. Take the contents of your refrigerator. According to the Wall Street Journal, an American family of four spends up to $2,000 a year on food they never eat.

We also use very little of what we actually own—only about 20 to 30%, experts say—which means a whopping 80% of our stuff may be sitting around feeling unloved, only to end up in a donation bin one day.

One reason is impulse buys. A recent British study found that women spend over $30 a week on impulse buys (men spend over $40), such as clothes, magazines, alcoholic beverages, books and DVDs. Over the course of a lifetime, they say, you’ll drop about $114,300 dollars on junk you don’t need. As Tim Jackson, author of Prosperity Without Growth: Economics for a Finite Planet recently put it: “We’re being persuaded to spend money we don’t have on things we don’t need to create impressions that won’t last on people we don’t care about.”

Or put simply, we waste money on cr#p.

Why do we do it, especially in this economic climate? The truth is, the odds are somewhat stacked against spenders, when you pair our “keep up with the Joneses” culture with the way our brains are wired. (Yep, you heard that right. Your brain has something to do with this). That’s not to say we’re not 100% responsible for the choices we make,  but there are a few lures that can help “persuade” us  to frivolously spend. Just being aware of them can help you make better choices. Here are four reasons you and your money are soon parted if you’re not paying attention.

1. Your brain on money

Studies in a new field called neuro-economics show that our brains light up when we even think of spending or receiving money. The field of economics once thought we spent money on things that made us happy. Nope. The money itself makes us happy. Using MRI technology, researchers at Stanford found money itself activates the brain’s pleasure centers. Which means you’ll likely come down from the “high” once you get your purchase home; the best part (the feeling you get from spending) is over.  We suggest a new mall-mantra: When your brain is a-light, take flight!

2. Your brain on money, Part 2

Most of us are hard-wired to respond to instant gratification, according to researchers who studied the brains of people who spend versus those who save. Spenders’ brains light up like Christmas trees when they’re buying something now; they’ll even say no if offered money to wait a few days. Savers’ brains light up at the thought of delayed gratification (such as a secure retirement). Unlike the smaller percentage of savers, spenders aren’t concerned with consequences (which is why a majority of Americans are not prepared for retirement). Beware of that impatient gotta-have-it-now feeling.

3. Our instant-access, instant-gratification culture

“Pleasure now is worth more to us than pleasure later,” Northeastern University economist William Dickens told The Daily Beast. Having instant access to everything 24/7, including click-and-ship technology that lends itself to impulse buys is not helpful, especially considering Lures 1 and 2.

 4. Preying marketers

Ever notice the great tunes playing in the stores you love to frequent? Makes you happy, right? It also makes you want to spend. Music affects our moods, which in turn affects how we spend, and marketers know this. They study human behavior to learn what conditions make people spend, and implement them. The result? Consumers buy things they think they need, items that often just take up space and end up in a garage sale.  So pay attention: When your favorite song comes on and you get the urge to open your wallet for that fab-o knit dress, you may want to close your wallet and dance your way out the door.

Here are  a few more tips for combating these brainy saboteurs.

• Make conscious choices. Think about the financial freedom that awaits if you do or how that money could help you reach your goals. For example, if a couple invested the $303 a month typically spent on impulse buys, after 20 years at 5% interest they could have about $125,000 socked away.

•  Before you buy, ask yourself  “Why do I want this? Would my life go on just fine without it? Would I rather have financial freedom?”  Then hold off for a week and ask those questions again. You’ll probably realize, in hindsight, you didn’t need it.

• If you find you waste a lot of money on stuff you don’t need, try going to a cash system. Credit cards give you a feeling of having unlimited funds. If you’re forced to pull out the green, you’re more likely to spend only on needs.

As for the groceries, here are a few tips for buying and using them more wisely. Always stick to your shopping list, allow yourself one or two rogue items under a certain amount per trip. Proctor and Gamble’s site dinnertools.com suggests buying frozen fruits and vegetables instead of fresh (which can be just as healthy as fresh, and in some cases healthier). Cook up some of your meats ahead and freeze them so they don’t go bad. Even breads and baked goods can be frozen for about two months. Also, when buying in bulk, such as at Costco or BJs, only buy non-perishables.

The daily lattes, well, they’re your call. If they make your day, we say keep them in, and get frugal with something that doesn’t increase your happiness quotient.

 

Photo: Jim Larson/Flickr