Avoiding the Impulse Buy

Summary
  • Nearly 40% of all money spent on e-commerce sites are the results of impulse buying – it’s big business
  • Impulse buying is bad. Left uncontrolled, it leads to credit card debt.
  • How to avoid impulse buying
  • Are you compensating for something?
  • We offer suggestions for alternative activities that are good for you
What is Impulse Buying?

The dictionary says:

im·pulse buy·ing
noun

 

Do you impulse buy?

Factoid: Nearly 40% of all money spent on e-commerce sites are the results of impulse buying.

The two most influential factors when making a spontaneous purchase are the special sale price (for a limited time) and free shipping.

Let us ask again, do you impulse buy? Be truthful to yourself now.

For business, impulse buying is a huge opportunity! There is a science behind encouraging consumers to do so. Read How to Sell to Impulse Buyers. Retailers describe these shoppers as emotionally-driven, favoring instant gratification, social status-conscious, and image-concerned, anxious, or less happy/depressed. Techniques that retailers use to encourage impulse buying include:

  • Special sale price, usually “for a limited time”. Why do you think that is?
  • Brick-and-mortar retailers place nick nacks near the checkout counters.
  • E-commerce sites with their easy to use web site with lots of impulse buying suggestions such as “Related items”, or “What others are buying”.
  • The one-click checkout makes it very easy. Too easy. Scary easy. One click and it’s yours. Money changes hands, yours into theirs. No longer do you have to put in your credit card info, your shipping address, confirm the item and quantity. Instead, it’s “bam!” And it’s done.
Warning! The "Buy now with 1-Click" button is conducive to impulse buying
Warning! The “Buy now with 1-Click” button is conducive to impulse buying – disable it now.
Why is Impulse Buying Bad?

Impulse buying is bad because it puts your ability to save money each month at risk, depletes your savings, gets you into and debt, and eventually erodes your freedom.

“Freedom?” You ask.

“Yes, freedom! Freedom to eventually do anything you want, any time you want, and being able to pay for it. And pay for it just once.”

“Paying for it just once?” You ask.

“Yes, just once. When you can’t live within your means, you’re going into debt.”

For most consumers, it’s usually credit card debt that gets them into trouble. When you’re in debt, you pay for the amount you borrowed (the principal) and interest on that principal. And your total payments snowball in comparison to the original amount borrowed. When you make a monthly payment, the first portion of that payment goes toward the interest for borrowing the principal. Then what remains go towards lowering the amount you borrowed. Let’s go through a couple of examples:

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News: Majority of Millennials Are Happy Despite Financial Anxiety

Wells Fargo released some interesting news about Millennials’ personal finances: most are happy and they consider their lives meaningful. And those who are more engaged in their financial planning and investments are even more likely to consider themselves happy. Surprisingly, 73% either never plan to invest in the market, or will “never be comfortable investing in the market.”

graphic: Wells Fargo Bank study
graphic: Wells Fargo Bank study

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Setting Goals

Summary

  • Goals are like lighthouses for our lives: they help guide us to our life destinations, even through the foggiest moments of our lives
  • Setting goals is the first step to achieving goals
  • Analyzing your goals will give you insights as to why they’re important to you
  • Identify and take baby steps towards achieving your goals… day-by-day, week-by-week, month-by-month, stay true to your goals and you will achieve them
  • Review your goals regularly, prune outdated ones, let others grow depending on your current priorities and interests

Welcome to your goals.

Goals are like lighthouses for our life
Goals are like lighthouses for our lives: they help guide us to our life destinations. (photo credit: author)
Brainstorm Your Goals

Go for it. Let yourself go and identify goals of all sorts. You are unconstrained. Don’t limit yourself. Here are some ideas to help get your goal setting mood in order:

  • Educational goals: earn an MBA degree, learn how to write an iPhone app
  • Career goals: become a program manager, write a book, work abroad as an ex-patriot for a couple of years, win an Academy Award, win a Nobel Peace prize
  • Financial goals: pay off my student loan early, pay off my credit balance, buy my first home, pay off my mortgage
  • Financial/riches goals: save my first $100k, my first $1M… be financially independent, retire by age 50
  • New skills: learn SCUBA diving, learn downhill skiing, become a better photographer, learn how to sail
  • Experiential: go zip lining, go whitewater rafting on the Colorado River, go sky diving, go off-roading in an ATV or 4×4 vehicle, watch a night-time rocket launch from Cape Canaveral, see a solar eclipse
  • Travel: visit Australia, walk on the Great Wall of China, climb Mt. Kilimanjaro, see Machu Picchu, see all the U.S. National Parks
  • Material goals: own a Mercedes Benz SL roadster (fill in the blank with your dream car), own an ocean-front penthouse condo apartment in Miami’s South Beach
  • Family/relationship goals: I want to get married, I want to mend the relationship with my mom
  • Friendship goals: go to your high school 20-year reunion, take a “boys-only” vacation to Las Vegas
  • Spiritual: become a better Christian, volunteer for my church more, volunteer for mission work
  • Retirement goals: retire in Hawaii (fill in your dream destination), overland the world
Time Bounding Your Goals

Next step, put a time bound on the goal. For example:

  • achieve by the year 2025
  • achieve by age 40
  • achieve before you die

Then set these goals aside for a while. Take your mind off of them for a while… bookmark this page so you can return to it.

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Budgeting 101 for College Students

Summary
  • Get some discipline and live within a budget: your financial well-being will thank you for a lifetime
  • Establish a budget:
    • focus on getting/staying out of debt
    • build up a “rainy day” savings fund
  • Some tips for living within a budget
  • Follow through and track your expenses: be accountable to your budget
  • Download: a sample monthly budget spreadsheet to help you jump start the process
Do you need a Budget?

Yes.

Do you remember the Disney-Pixar classic animation Toy Story, where Sheriff Woody says, “If you don’t have one, get one!”

“If you don’t have one, get one!”
“If you don’t have one, get one!”

He was actually talking about moving buddies, to safeguard Andy’s toys from being lost in the chaos of the residential relocation. The same advice holds true for a budget. So that your financial well-being does not get lost in the chaos of life, give yourself the discipline of a monthly budget. It will thank you for a lifetime.

Why Live Within A Budget?

Living within a budget is not sexy or cool. But it gives you freedom.

“Freedom?” You ask.

“Yes, freedom. Freedom to eventually do anything you want, any time you want, and being able to pay for it. And pay for it just once.”

“Paying for it just once?” You ask.

“Yes, just once. When you can’t live within your means, you’re going into debt.”

For students, it’s usually credit card or student loan debt. When you’re in debt, you pay for the amount you borrowed (the principal) and interest on that principal. And your total payments snowball in comparison to the original amount borrowed. When you make a monthly payment, the first portion of that payment goes toward the interest for borrowing the principal. Then what remains go towards lowering the amount you borrowed. Let’s go through a couple of examples:

Continue reading “Budgeting 101 for College Students”

Discover the Best Online Savings Account

Summary

  • Among the highest APR (Currently 1.15% as of Sept 2017)
  • No minimum opening deposit.
  • No minimum balance to waive monthly fee – in fact there is no monthly fee.
  • Interest is compounded daily and paid monthly
  • Easy online transfers to your other banks and financial accounts
  • Great customer service

We have been banking with Discover Bank for its Savings Account continuously since 2009. We have recommended our children to open a savings account with Discover. There is no testimonial or recommendation that is more honest than that. We have reviewed other bank’s savings accounts offerings (e.g., Ally), and tried other bank’s savings accounts (Capital One) briefly, but we have always moved those funds back to Discover Bank.

I researched Ally Bank a few years ago, but found that it was fraught in customer service issues. Meanwhile reviews for Discover Bank were positive, consistent with my first hand experiences over the years.

Comparison
Comparison from Discover.com web site
Here are some facts you should know

Discover Bank is purely an online bank. It has no physical or local offices that you can visit and talk to a banking specialist or “teller”. There are no drive-through windows either. Customer service via toll-free call is delightful and productive.

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Best Checking Account for College Students

Summary

  • The best checking account for most college students (or any adult really) is the Charles Schwab Bank checking account
  • Free access to your cash at any ATM world wide (through Schwab’s unlimited ATM fee rebates world wide)
  • No service fees or account balance minimums
  • Pays 0.15% APY
  • Free Bill Pay, free standard checks, free Visa Platinum Debit Card
  • No foreign transaction fees
  • You can open a linked Schwab One Brokerage account at the same time as the Schwab Bank Checking account. You would be all set when you’re ready to invest your money. Get $100 bonus for opening a Schwab One Brokerage account (with a minimum $1000 deposit) as a referral from us.

We sent three kids off to college over the past few years. What were among the advice we gave them? Open a Charles Schwab Bank Checking account. We are offering you the same advice we give to our children. Nothing can be more truthful and sincere than that.

Charles Schwab BankHere are some facts you should know

Charles Schwab Bank is primarily an online bank. It is affiliated with Charles Schwab discount broker which has which has branch offices throughout the United States.

Pays 0.15% APR/Interest. That’s respectable. Other major banks pays 0.01%. Really? What an insult! Keep your savings in our recommended online savings account for 1.15% APR/interest.

No Required Minimum Balance or Monthly Service Fees. There are no minimum balance requirements or monthly service fees. Other major banks can charge up to $25/month service fee or require that you keep a balance of $10,000 daily balance to waive the month service fee.

Free to Use Any ATM World Wide. Whenever you access your account from out-of-network ATMs, there is usually an ATM surcharge or fee. Not Schwab. Out-of-network ATM charges are promptly and automatically reimbursed at the end of each monthly period. These reimbursements are clearly itemized on the monthly statement.

Schwab ATM fee rebate
Schwab  Bank’s ATM fee rebate on monthly statement, making it free to use any ATM world wide.

The maximum daily ATM withdrawal limit is $1000. But if you need a higher limit than that, simply call Schwab Bank and make special arrangements.

No Foreign Transaction Fees When Accessing Your ATM Abroad. Many credit cards and debit cards charge foreign transaction fees up to 3% of the transaction amount when you use your card abroad for purchases or access cash via ATM. Not Schwab. Use it to travel and backpack the world. Our children did this quite successfully. All you pay is is Schwab’s competitive foreign currency exchange rates, which fluctuates daily with the currency exchanges.

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Starting College: Give Yourself Some Credit

Summary

  • Start building your credit history and apply for a credit card when entering college
  • Use it to buy textbooks and supplies, and everything else – as an alternative to cash
  • Exercise fiscal discipline and pay off your balance in full each monthly cycle
  • Don’t use it to get into debt
  • What to look for in a student credit card:
    • no annual fees
    • earn points towards a cash rebate or travel credits
    • no foreign transaction fees
  • We recommend a few credit cards worthy of this purpose

Congratulations – you are starting college!

Starting college is an exciting time. Newfound freedom. New friends. New experiences. New intramural sporting opportunities. And let’s not forget new academic challenges.

UNC Chapel Hill
UNC Chapel Hill is the oldest public university in the United States. (photo credit: author)
New Financial Life

It’s also a great time to establish your new financial life. A checking account to safe-keep your hard-earned money and have ready-access to cash. It’s also a great time to start building your credit history. Having a good credit history means that you are a reliable borrower, low risk, most likely to pay back your debt. If banks and financial institutions recognize you as a low risk borrower, your chances of getting a loan (credit card credit limit, auto loan, mortgage) is higher and the interest rates that you would be paying are generally lower, than others who are considered riskier borrowers.

This concept is embodied in your FICO score, assigned by the financial industry and lenders to each consumer like you. The FICO score ranges from 300 to 850 (kind like SAT score). The higher the score, the better – the lower risk the borrower is. An average FICO score is 600-700, good is 700-750, while 750-850 is excellent. Your FICO score is computed by considering:

  • your payment history (35%) – reliable on-time payment each month
  • amounts owed (30%) – the lower your balance, the better, because it means you have a capacity to take on more debt (not that you would want to)
  • length of credit history (15%) – this will take time, that’s why you’re starting to build your credit history now
  • credit mix (10%) – recognition for the various types of credit (credit card, auto loan, mortgage)
  • new credit (10%)

For now, you should concentrate on the first two bullets. Read more about the FICO score.

How do you start building your credit history? For most people, it by obtaining their first credit card when they turn 18 years of age which is generally coincident with starting college.

How A Credit Card Should Be Used

Before we go any further, let’s manage your expectations. A credit card is not for running up a balance and getting into debt. That’s not the ideal way to build credit, or a fiscally responsible way of using credit.

Use it in lieu of using cash or checks to buy textbooks, school supplies, food at groceries, eating out, and just about everything else. It’s very convenient. It’s just like using your parents’ credit cards, except this time, you’re responsible for paying the bills. Ah, with financial freedom comes with great responsibility.

Speaking of which, do exercise fiscal discipline and pay off your credit card balance in full each monthly cycle. This is how you build your payment history and at the same time keep your amounts owed low to build up your FICO score. Don’t just pay the minimum payment required each month. Don’t use it to get into debt and begin the vicious cycle of paying exorbitant interest rates. This is what we call the modern day indentured servitude. You would be slaving to make the lenders richer.

If you carry a credit card balance
and just make the minimum payment each month,
you would be paying exorbitant interest rates
on the remaining balance.
This is like putting yourself into
the modern day equivalent of indentured servitude.
Don’t do this!

Continue reading “Starting College: Give Yourself Some Credit”