spending habits

How Pre-Commitment Mechanisms Can Help You Resist Impulse Buys

Emily Guy Birken — Mon, 28 Oct 2019 08:00:07 +0000

If you've read the Greek epic The Odyssey, you may remember Odysseus's ingenious plan to hear the dangerous voices of the sirens, who would lure sailors to their deaths. Every member of his crew plugs their ears with beeswax so they can't hear the tempting song, and Odysseus latches himself tightly to the mast of his ship, so that he cannot escape and steer the ship off course. With a little forethought, Odysseus manages to be the only human who hears the sirens' song and lives to tell the tale.

Odysseus's scheme is an excellent example of what behavioral economists and social scientists call "pre-commitment mechanisms." These mechanisms can be powerful tools in helping people overcome impulsive behavior, and specifically, overspending.

Here's what you need to know about pre-commitment mechanisms and how you can incorporate them into your financial decisions. (See also: 5 Mental Biases That Are Keeping You Poor)

Why do pre-commitments work?

According to Dr. Daniel Crosby, author of The Behavioral Investor, "pre-commitment works because it takes natural (and sometimes negative) human tendencies like laziness and status quo bias and actually makes them work for us."

Since we're likely to let a previous decision stand if it keeps us from having to make a new decision, we can profit from our own laziness. For instance, someone trying to maintain a healthy lifestyle may not keep donuts or ice cream in their home as a pre-commitment to eating better. Since getting junk food requires leaving the house, the pre-commitment of not buying treats can often be enough to keep sweets out of their diet.

Pre-commitments can help align your long-term goals with your short-term decisions. Dr. Crosby writes that "a pre-commitment should be used anytime we feel our short-term preferences may change, but our hope is for our long-term commitments to mirror our current frame of mind."

This means that anyone who'd like to spend less, make rational investment choices, or pay down debt could benefit from creating pre-commitment mechanisms.

What does a pre-commitment mechanism look like?

There are multiple ways to create a pre-commitment mechanism to keep you on track to accomplishing your goals.

Social consequences

Many successful budgeters blog about their journey out of debt or toward financial independence. These budgeters are pre-committing to social consequences if they should fall off the debt-repayment wagon. The negative social consequences of reneging on the publicly stated goals are much stronger than the immediate temptation to spend, which helps those who share their goals publicly to stay on track.

In the modern world, there are a number of ways to use social consequences as a pre-commitment to improving your spending habits. For instance, you can set up an automated alert from your bank or credit card issuer that texts your spouse anytime you make a transaction larger than a certain amount. The social consequences of having to explain your purchase to your spouse can be enough to make you pause before buying anything.

In addition, you can also seek out accountability partners via social networks or take a page from debt bloggers and record your journey in a blog.

Automation

Having your savings taken automatically from your checking account allows you to pre-commit to a savings strategy that's harder to undo. This automated decision allows you to benefit from your own disinclination to change the default setting. (See also: 5 Ways to Automate Your Finances)

According to Dr. Crosby, one of the most famous examples of a pre-commitment mechanism is the Save More Tomorrow program, popularized by Richard Thaler and Shlomo Benartzi:

"It involves pre-commiting to the auto-withdrawal and auto-escalation of retirement savings over time. Effectively, it allows a retirement saver to make a good decision once that benefits them for the entirety of their savings lifetime. People are busy, their willpower is weak, and their decisions can be inconsistent. By 'setting and forgetting' decisions like saving and escalating retirement contributions, human frailty gets turned on its head."

Remove temptations

Another pre-commitment option is to change your environment so that you encounter fewer temptations. This is what the dieter who has no sweet treats at home is doing. Reformed spenders can do the same by taking their credit card out of their wallet. (There's a very good reason for the old-fashioned advice about freezing your credit card in a block of ice.)

Similarly, removing your payment information from your favorite online retail sites, unsubscribing from retail email newsletters, and immediately recycling paper catalogs you receive can all help you avoid the siren song of spending.

When pre-commitments don't work

While setting up pre-commitment mechanisms can do a great deal to help you improve your financial life, they're not magic. A pre-commitment that can be undone will be undone if it's easy for you to change your commitment when you're feeling tempted.

Dr. Crosby has seen that creating rules-based pre-commitment strategies often does little to stop investors from reacting emotionally. "Jim O'Shaughnessy, the godfather of quantitative investing, recently revealed that 60 percent of rules-based traders broke their rules during the Great Recession, effectively nullifying their pre-commitment (which is all an automated, quantitative strategy really is)."

These traders had pre-committed to a kind of "if this, then that" rules system for investing. But when they got scared about their investments, they ignored the rules they had committed to. Because they could break their own rules, these traders did so, despite their pre-commitment to more rational investment choices.

This is why Dr. Crosby recommends making your pre-commitments difficult to alter. "Once you've made a commitment, you want it to be as hard as possible to change it. Make that choice and lose the key!"

Know your temptations

Pre-commitments can help you protect yourself from making easy, habitual, lazy, emotional, or poorly-thought-out decisions. But your pre-commitments will be more effective if you know which temptations are most likely to affect you, and if you make your pre-commitments difficult to change.

Be like Odysseus, and outsmart your worst impulses before you have a chance to indulge them.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Mindful Spending Habits That Will Save You Money

Emily Guy Birken — Mon, 12 Aug 2019 08:00:06 +0000

Spending money mindlessly is easy to do — not to mention fun! Between one-click purchases, instant downloads of new movies and music, quick stops for something to eat, and impulse purchases in stores, it's entirely possible to spend an entire paycheck in a day without even realizing.

But just because it's easy to spend money without thinking doesn't mean you have to fall victim to it. The following mindful spending strategies can help you resist impulse buys long enough to help you remember what you truly value.

Calculate costs in hours spent

While money is replaceable, time can only be spent, not earned. That's why it's helpful to start thinking of prices in terms of hours, rather than dollars. Remembering that you've already traded your time for the money you plan to spend on whatever has caught your fancy can be enough to help you keep your cash in your wallet.

Vicki Robin and Joe Dominguez popularized this strategy in their book Your Money or Your Life, where they make the case that your time is literally money, since you trade your time away in order to get money. When you calculate costs in hours spent, you determine the amount of money you net per hour, and compare that number to the cost of goods and services to buy. With your calculation in hand, you have a better sense of how much time any one purchase costs you.

To put this strategy into action, start with your monthly income. Check your pay stubs to see how much you make per month. Multiply your monthly net income by 12 to get your annual income, then divide it by 2,000 (the typical number of hours worked in a year) to get your hourly wage.

Let's say your monthly income is $3,100. If you multiply that by 12, you get $37,200. Divided by 2,000, you get an hourly wage of $18.60.

Having that number in your head can re-contextualize prices, because it gives you a concrete value of your hours. When you're tempted by a home assistant device that's on sale for $150, the price may seem like no big deal. But is it worth 8.06 hours of your work time?

You may ultimately decide that having a home assistant device is worth just over a day of work — and that's absolutely fine. Calculating prices in hours worked means that you're actually clear on what the true costs are.

Know why you're shopping

Eating and shopping can both feel very good in the moment, to the point where you ignore any signals that tell you that you've had enough. Like eating, we often spend money because we want to change our emotional state. And in both cases, there's a huge industry in place trying to keep us mindless, continuing to ignore signals and consume in order to avoid emotions.

To combat this, get several blank index cards. Place these where you'll see them anytime you might spend money. For instance, put one in front of your credit cards in your wallet, one on your laptop, and one taped to the back of your phone. On each card, write the following questions for yourself:

Why do I want to buy this?
What problem do I expect this purchase to solve?
How do I expect to feel after making this purchase?
How long do I expect to own this item/use this service?
Do I already own something similar?
Can I recreate the feeling of buying this without spending money?
Can I recreate the feeling of buying this by spending less money?

It's important to check in with yourself to understand why you're consuming so you can stop if it's not what you really want, or engage mindfully so you can truly enjoy the process if it is what you want. (See also: 8 Ways to Save Money When You Can't Really Afford To)

Create a purchase wish list

There is an excellent reason why "wait before making any purchases" is a classic personal finance tip. Forcing yourself to wait to decide if you actually want to spend money on an item can help mitigate the emotional element of spending decisions.

However, if you've ever tried to institute such a rule for yourself, you'll remember the "I don't wanna wait!" reaction that can derail the entire process. Even though you might be aware of these impulse-driven moments, it can still be tough to stand up to that foot-stomping part of yourself insisting on making the purchase right now.

One method of both calming and honoring the little Veruca Salt inside you is to keep a purchase wish list. When you find something you absolutely want to buy, quickly write down what it is, where and when you found it, and how much it costs. Once you've written it down, set a date anywhere from 24 hours to 30 days in the future when you may come back to make the purchase, if you still want it.

There are two benefits to this list:

You create self-awareness

You're recognizing the part of yourself that wants to give in to the impulse purchase. It does feel good to buy things on a whim. It would be fun to have whatever cool thingamajig you're pining for. Writing down all the details about the potential purchase is a way to honor the reality of your spending desires. You're not wrong for wanting the item, and making this list can help you feel more at peace with leaving it behind at the store or in your digital cart because you've honored your emotional reaction to it.

You train yourself to resist impulse buys

The second benefit is that by creating this list and letting it age, you learn to spend less on impulse buys, while still being open to making spending decisions that truly enrich your life. True impulse buys won't tempt you to return, since the inconvenience of going back will be stronger than the impulse to buy. The purchases you actually care about will be worth the wait, and allowing yourself to go back for such buys will ensure you don't feel deprived. (See also: How a Simple "Do Not Buy" List Keeps Money in Your Pocket)

Keep your mind on your money

Parting with money is incredibly easy, especially in our increasingly cashless society — which makes it very hard to resist the siren song of spending. But recognizing the time cost of purchases, asking yourself why you're buying, and honoring your impulses by creating a purchase wish list can all help you to pause between your desire and your purchase.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Reflecting on Possessions Can Help You Resist Impulse Buys

Emily Guy Birken — Tue, 27 Nov 2018 09:00:11 +0000

The office supply section of the local pharmacy has a nasty habit of extracting money from my wallet. You'd think I could easily fix this problem by avoiding that aisle, but nearly every time I'm at the pharmacy, I'm convinced that I need to buy some mechanical pencils, and perhaps some sticky notes, too.

Some of what's going on here is my personal affinity for office products, but my growing collection of highlighters also reflects a universal problem: the inability to resist impulse buys. But according to a 2018 study from Rice University, an easy and free way to keep yourself from making impulse buys is simply reflecting on the items you already own.

Here's how this trick can help you keep more money in your wallet, and fewer notebooks and binder clips from following you home. (See also: 10 Classic Impulse Buys We Need to Stop Falling For)

Think about what you already have

The Rice University study asked one group of participants to describe an item they purchased, currently own, and have recently used. For instance, a 29-year-old female participant wrote:

"I just purchased a Kindle Fire. It is black. I can read books and access the internet. It opens a world of novelty to me. I read a book in bed and checked the weather this morning before even getting up. I spent about 45 minutes. I also downloaded several apps. I was lying down and the ease of Kindle use allowed me to comfortably read without noise to wake up my partner."

The "recently used" aspect of this thought exercise seems to be the important factor in helping to reduce your interest in spending money on something new. A second group of participants was asked to make a plan to use items they already owned but had not used in some time, while a third group — the control group — was asked to do nothing.

Surprisingly, the participants in the first group, who had reflected on something they owned and had recently used, found their willingness to pay for something new reduced by 14 percent compared to the control group. The planning group, despite having thought about the fact that they have items they are not using, saw their willingness to pay for a new item increase by about 6 percent compared to the control group. (See also: 8 Ways Social Media Tricks You Into Spending More)

Practice gratitude as an antidote to impulse buys

So why did the planning group see their willingness to spend money increase? Logically, it would seem that thinking about all the unused stuff you already have would be enough to pump the brakes on an impulse buy. After all, why spend money on something new when you have things already collecting dust at home?

However, buying something on impulse is, by definition, an emotional decision. So trying to counter that urge with a logical response is unlikely to work. It would be like trying to fight a fire with a single ice cube. Instead of trying to talk yourself out of an emotional decision using logic, you need to counter it with another emotion.

In particular, gratitude has been proven to reduce impulsive urges. According to a 2014 study published in Psychological Science, participants who were prompted to feel grateful showed a reduced level of impatience in waiting for a financial reward.

What's likely going on here is the fact that impulse purchases are often an attempt to fill some sort of emotional void. My purchase of a new pen is not really about the pen itself, but the momentary thrill I feel at having something new. That thrill keeps me from feeling low or bored or frustrated, however briefly the emotional boost may last.

But gratitude is a nourishing emotion. It is difficult to feel an emotional void when you're reflecting on how full your life is and how glad you are to have what is already yours.

Within this context, it makes sense that the Rice University study participants thinking about a recently-used item they already owned were less inclined to spend money. Intended or not, they were given an opportunity to feel grateful for an item they already had, which lessened their interest in spending money on something new.

How to make this practice work for you

The next time you're facing down a display of day planners or dry erase boards (or whatever impulse purchases tend to tickle your fancy), take a moment to think about an item you already own. Specifically, try to remember:

How much you spent on it.
When and where you bought it.
What it looks like.
When you used it last.
How you used it.
What you enjoyed about using it.

It's very likely that your potential impulse buy will have lost its sheen by the time you finish thinking through all of these. Not only will this thought exercise give you a moment's pause between wanting and buying — which is very helpful in giving your better nature a chance to remind you that you don't need yet another notebook — but it will also evoke a sense of gratitude for what you already have. (See also: 7 Effortless Ways to Prevent Budget-Busting Impulse Buys)

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Keeping Up With the Joneses Can Actually Save You Money

Emily Guy Birken — Tue, 06 Nov 2018 08:00:11 +0000

When I was a new mom, I attended a parenting group where the father next to me mentioned putting aside $130 per month in his daughter's 529 college savings account. At the time, I had just opened my baby son's 529 account with a check from his grandparents, but it hadn't occurred to me to do a monthly transfer. I checked our finances to make sure we could spare $130 per month, and set up an automatic transfer.

It's been over seven years, and that monthly transfer is still going strong. When my younger son was born, we figured out a way to afford transferring $130 per month to his 529 account, too.

I'm sure the man I was sitting next to had no idea his throwaway remark would have such a profound effect on my kids' college savings accounts, but this experience proved that wanting to "keep up with the Joneses" can often be a good financial decision. I wanted to keep pace with another parent, so I worked to make sure my savings rate matched his.

Though keeping up with the Joneses often gets a bad rap, this sort of financial competition can help you save money and make better financial choices. Here's how to make it work for you.

Understanding anchoring

Part of the reason why the spending habits of others can be such a powerful trigger for financial decisions — both good and bad — is because of a cognitive bias known as anchoring. This quirk causes us to latch onto a the first number or price point we hear as the "normal" price for something.

For example, in the case of my 529 contributions, hearing the other parent say he puts aside $130 per month anchored that amount in my mind as an appropriate monthly contribution. Had he said that he put aside $30 or $350 per month instead, my anchoring bias would have latched onto those numbers as the contribution amount to strive for.

You often see anchoring working against your financial health when you compare yourself to the Joneses. Let's say that instead of 529 contributions, I had been discussing monthly car payments that day. If someone had told me they spent $650 per month on their car payment, that amount would have become the number I initially thought to be a reasonable amount to spend each month. With a $650 per month anchor, I might have ended up getting a far larger car loan than I could afford because my mental anchor was very high. (See also: 8 Ways to Build Your Financial Self Esteem)

Helpful comparisons

So if hearing others talk about how they save or spend money can give you a sense of what is normal or reasonable, here are two ways to make sure you're getting comparisons that will help, rather than hurt, your bottom line.

Seek out money role models

According to behavioral scientist Sarah Newcomb, Ph.D., author of the study The Comparison Trap: How Social Comparisons Affect Our Financial Well-Being, comparing yourself to someone you admire and respect (who is also similar to you, or has a professional or financial path that you can realistically follow) changes the way you feel about any differences in your financial lives. Instead of feeling as though you are not measuring up — as you would if comparing yourself with a peer who earns more or has more than you do — you will do a kind of aspirational comparison, where you think about how you can become more like your role model. (See also: 4 Money Lessons You Can Learn From the Joneses)

Figure out average spending among your peers

The website Status Money allows you to see how your finances compare with those of your peers, anonymously. This can help you understand which budget categories you're overspending on based on what is considered average, rather than based on any one individual. While a friend or family member can throw your sense of what's appropriate to spend out of whack, seeing what's average among all of your peers can give you much more clarity.

Choose your friends wisely

We all have friends who spend money like it's going out of style, and it's easy to feel like you need to keep up. And then there are friends who seem to egg you on to make purchases you don't need.

While there's nothing wrong with staying friends with these sorts of high rollers, it's important to recognize the effect they have on your budget, and make plans accordingly. Plan on seeing spendy friends in environments where you can't spend money — like at dinner parties or on nature hikes — so that the temptation to keep up is removed entirely.

Otherwise, surround yourself with people whose money habits you'd like to emulate. Then you'll feel no conflict between your desire to save and your desire to please your friends, since those two things will be in alignment. (See also: 5 Friend Types That Can Hurt Your Finances)

The Joneses can be a useful yardstick

Keeping up with the Joneses is a problem if you're simply trying to save face in a spending competition. But knowing exactly how much people save or how little they spend can give you a helpful metric for managing your own finances. The trick is to recognize when to use the example of the Joneses, and when to ignore it.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Avoid 7 Common Spring Spending Traps

Paul Michael — Fri, 30 Mar 2018 09:30:15 +0000

Spring is here, and along with a much-needed change in the weather comes something we could all do without — spring-themed retail offer overload. You're going to be bombarded with deals and steals from every industry now that the snow is starting to melt, and you need to shut out the noise. Most consumers fall for the following seven spending traps year after year, but this year, you don't have to.

1. Spring cleaning mania

There's nothing advertisers love more than a seasonal term that can be branded. At the top of the list for this time of year is "spring cleaning," and retailers use every angle they can to get you to buy things you don't really need. First, they're going to tell you it's time to throw out the stuff that's cluttering up your home and garden. Get rid of it. Then, they're going to convince you to stock up on cleaning supplies and storage options (more on the latter in a second). Putting these items on sale makes the temptation even greater, and before you know it, you've filled your cart with cleaning products and shelving units. Don't fall for any of it.

Sure, if your house is packed with clutter, see what you can sell, what you really don't need any more, and what you can donate. Don't buy new cleaning supplies until you've used up the ones you already have. And if you're getting rid of things you don't need, then you probably don't need extra storage, either. At the end of spring cleaning, you should be left with more space, less junk, and maybe even a little cash. (See also: How to Spring Clean Your Whole Life — One Step at a Time)

2. Spend your tax refund!

Why would you want to let that refund sit in a bank account or pay off debt when you can blow it all on the latest tech gadgets? That's the mentality of almost every brand out there, and they are going to dangle offers in front of you that make spending your refund very enticing. Big screen TVs, home improvements, vacations, clothing, jewelry, carpet cleaning, and anything else you can think of will be thrown into the mighty "tax refund savings event."

Again, this is just a basic marketing trick to get to your money. And it's money that you are owed, and that should be spent wisely. Steer clear of spending your refund on anything you don't truly need, and put it toward paying down debt or saving more money for retirement. (See also: Most Popular Ways Americans Spend Their Tax Refunds)

3. New season? Time for a new wardrobe!

A new season means new clothing trends, and here's the pitch you'll be given by brands looking to sell you clothing, shoes, and accessories: "Forget all the spring clothes you bought last year. Let's be honest … they are sooooooo last year. Instead, donate them and get a new wardrobe full of the latest, greatest spring fashions!"

Yes, clothing trends change all the time, but do you really need new clothes that will be on sale in a few months' time? Is it crucial you get the same shirt you already own in the "hot new Pantone color?" And is it important to get it now, whatever the cost? You no doubt have a lot of garments from last year that are still in good condition. Wear those until they no longer fit or fall apart, and save your money for the more important things on your "to buy" list. (See also: 10 Smart Ways to Keep Your Clothes Looking New)

4. Spring break vacations

Vacation sites are pushing hard this time of year for spring break getaways, and with the kids out of school and the winter blues getting a lot of people down, it seems like a good time to indulge. However, it's also a peak time to indulge, and that means the vacation you book over spring break is going to set you back a lot more money than if you wait a few weeks later to book your getaway.

True, the kids won't be off school, and that can put a wrench in the works. But if kids aren't a consideration for you, or you ask the school to supply them with homework for the trip, you can save big bucks by avoiding the spring break craze. Also, spring break is associated with older teenagers and twenty-somethings going bonkers, and many of the popular destinations spots will be overrun by rowdy partyers looking to throw caution to the wind. If you don't want to be in the center of a booze tornado, avoid this time of year to travel. (See also: Why Timing Is Everything When Saving Money on Travel)

5. Trade in your old wheels for new

There's something to be said for getting a new car around springtime. Traditionally, it's when car dealerships start to discount some of the older models to make way for the new models coming to the lot. But like any deal, it's only a bargain if you need it. It can be hard to resist the discounts, with zero percent financing and 15 to 20 percent discounts on many models.

However, do you need a new set of wheels? How old is your car? How reliable is it? Don't fall for those circulars and direct mail pieces that dealers send out saying "we desperately need your trade." Well, of course they do. Dealerships make way more money on trade-ins than new models, and you will make their day by turning in a perfectly good car for a new model you don't need. (See also: 3 Reasons Why You Should Never Buy a New Car)

6. Outdoor deals aplenty

Camping gear. Backyard furniture. Grills. Fishing rods. Sports equipment. You're about to be presented with a buffet of outdoor deals that will get you ready for the warmer months ahead. Right now there is a desperate desire to get outside again after the cold winter season. But even though spring has sprung, the warmer weather can take a while to get here. In fact, many states will still see the occasional snowfall for the next couple months. All that new gear will be waiting to be used.

Instead of buying new outdoor gear, take advantage of the people who fall for the offers and sell their barely-used gear for cheap on Craigslist and eBay. Or just wait until the prices really dive toward the end of summer and stock up for next year.

7. 'Tis the gifting season … again

With St. Patrick's Day behind us, you'll see cards and gifts on display for Easter, Mother's Day, graduation, and even "spring greetings," whatever that is. The next few months are going to trick you into spending major moola if you're not careful. For starters, store-bought cards are incredibly overpriced and impersonal. These days, with superb home printers and free design software and templates, you can easily make a card for pennies that will be just as loved by the recipient. Homemade presents and baked goods are always loved, and spending quality time with mothers and grads is more valuable than buying fancy gifts. (See also: 5 DIY Mother's Day Gifts Moms Will Love)

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Pitfalls When Chasing Travel Rewards

Holly Johnson — Tue, 17 Oct 2017 08:30:10 +0000

By signing up for travel credit cards, earning travel points through bonus offers and regular spending, and using your points in the smartest way possible, you can travel to far-flung corners of the world while minimizing out-of-pocket expenses. (See also: 5 Steps to Getting a Free Vacation in 9 Months with Credit Cards)

While this probably sounds intriguing and fun, and it is, there are so many nuances to this strategy that it’s easy to get it all wrong. To be a pro, you need to know which types of travel currency to pursue, how to maximize your miles, and how to avoid the many pitfalls that come with using credit cards in general. (See also: How to Use Travel Rewards Cards to Get Free Trips)

1. Missing out on a sign-up bonus

Credit card sign-up bonuses offer one of the easiest ways to earn points or miles in a hurry. Often, you can earn up to 50,000 hotel points or airline miles after meeting a minimum spending requirement in the $1,000–$5,000 range within three months. Sounds easy, right?

Unfortunately, far too many people jumble the details along the way. Either they fail to meet the minimum spending requirement because they mix up the dates, or they misread the fine print and don’t spend enough.

Either way, you’ll want to avoid this mistake if you want to maximize the points and miles you earn. It helps to read the offer details and understand it inside and out before you take the plunge.

2. Failing to optimize

Failing to optimize is another common mistake many new travel hackers make. When you don’t understand the details of individual rewards programs, it’s easy to assume they’re all the same. The thing is, not all travel programs are created equal — not even close. (See also: How Travel Rewards Credit Cards Really Work)

Here’s a good example of failing to optimize: Let’s say someone has 50,000 Chase Ultimate Rewards points and needs to book a flight from Chicago to Los Angeles. Because they don’t know any better, they might go ahead and book their flight through the Chase Ultimate Rewards portal for the current price, which happens to be 32,000 Chase points on that specific day.

If they had dug a little deeper, however, they might find that you can often fly Southwest Airlines from Chicago Midway Airport into LAX for less than 13,000 points round trip. By transferring their points to Southwest instead of booking through the portal, they could have saved 19,000 points!

The bottom line: Make sure you consider all your options before you use your points for travel. With some creative thinking and planning, you could find a much better deal. (See also: 7 Frequent Flyer Rules to Go Farther on Fewer Miles)

3. Racking up credit card debt

Often, people who aren’t financially sophisticated dive into the credit card rewards hobby without setting limits or expectations. Unfortunately, not having a plan for credit or never tracking your spending can easily lead down the winding road of credit card debt.

To avoid debt and all the stress that comes with it, only use credit cards when you have a spending plan in place — and the discipline to pay your balance in full each month. If you wind up in debt, the rewards you earn will be wiped out by the credit card interest you’ll pay each month.

4. Letting your points expire

It’s crucial to make sure your hard-earned points don’t expire before you’ve had a chance to use them. While some programs like Delta SkyMiles and Chase Ultimate Rewards offer points that never expire, other travel currencies can expire if you don’t “earn or burn” any points for 12–24 months.

The best way to avoid expiring currencies is to know when your points will expire and enact a plan to “restart the clock.” Most of the time, it’s fairly easy to save points by shopping through a loyalty shopping portal or spending even a handful of points. (See also: How to Save Frequent Flyer Miles That Are About to Expire)

5. Earning points without a plan

I can’t tell you how many times I’ve seen people earn points and miles without any type of plan at all. Sometimes they are pursuing a currency that won’t even work with their travel plans. For example, I know one person who built up a giant stash of Southwest Rapid Rewards points for a trip to Europe, without ever realizing that Southwest doesn’t fly to Europe. (See also: Choose the Best Travel Rewards Credit Card with this Guide)

The best way to get ahead in the game is to get strategic about the points and miles you’re earning and why. Figure out where you want to go, then decide which travel currency will get you there. Better yet, pursue flexible travel currency like Chase Ultimate Rewards or American Express Membership Rewards. That way, you can earn all the points you want and decide how to use them later on. (See also: Tools for Tracking Your Rewards Points)

6. Waiting too long to book

While it’s possible to book award travel right up to the last minute, anyone who has been in this hobby for a while will tell you it’s better to book ahead.

If you can book a flight six to nine months in advance, for example, you’ll normally find more award availability than you will closer to departure. The same is true for hotels; since hotels have limited award availability, waiting too long to book can mean missing out. (See also: 12 Expert Tips for Redeeming Miles for Free Travel)

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Does Your Junk Mail Say About You?

Dr Penny Pincher — Wed, 04 Oct 2017 08:30:11 +0000

Since it costs money to produce and mail marketing materials, most of the junk mail you receive does not end up in your mailbox by accident. Marketing companies target customers with junk mail based on information that leads them to believe you would be a good candidate for their offers. The companies that send junk mail use information such as credit history, credit card balances, mortgage information, and public records to find targets for their marketing materials. They also buy lists of potential customers that have recently purchased a certain type of item or signed up for a catalog in a product category.

What does the type of junk mail you receive say about you?

You have high net worth

If the information available to marketers such as home value in your neighborhood or length of your credit history indicates that you have significant net worth or may be nearing retirement, you may get offers related to investment and retirement planning offers, invitations to free dinner events to learn about investment services, and offers to subscribe to investment newsletters.

You have good credit

People with good credit scores tend to get the best credit offers. If you have a high credit score, you might receive offers for rewards and travel credit cards, preapproved credit card offers with favorable terms, and balance transfer offers with low fees. (See also: 10 Questions to Ask Before Accepting a Credit Card Offer)

You have poor credit or high debt

Credit offers with the least favorable terms are targeted to those with lower credit scores, since these people are more likely to take an offer with worse terms. Those with poor credit will typically get applications for credit cards with low "teaser" interest rates that go up, debt consolidation offers, and applications for credit cards with high interest rates, and high annual fees, as well.

You shop a lot

Many types of mail order purchases, online purchases, and orders from TV infomercials will get your name on catalog mailing lists that will be used to try to sell you related things, or even unrelated things.

You live in a good neighborhood

Some types of junk mail are sent to all residences in particular neighborhoods that are seen to be a good fit for what they are selling. You'll see lawn care and pest control services, high-end security alarm installation, and house cleaning deals addressed to you.

You're fixing up your house

Once you request information about one home improvement item, you'll likely start to get other offers as well, such as big ticket home improvement installations for doors, windows, siding, roofing, remodeling, and coupons from home improvement stores.

You bought a new car

If you buy a car from a dealer, your name can end up on a variety of mailing lists. Based on the date you purchased your car, you can get junk mail anticipating your next car purchase three or four years later. You'll get extended warranty offers, invitations for test drives, and contests you can enter if you stop by the car dealership.

You're an athlete or sports fan

If you buy sporting equipment by mail order or at a sporting goods store with delivery, your name and address can start to circulate on marketing lists for sporting goods, or fishing, hunting, and camping products.

Or if you order tickets to watch your favorite sports team in action or sign up for a fan club, marketing companies will try to sell you other items related to your team, such as fan merchandise or event ticket offers.

You're a globe-trotter

Frequent travelers are a classic target for marketing via junk mail. If you're often seeing the world, once you get home you'll find vacation package offers, hotel club invitations, and frequent flyer program info in your mailbox. (See also: The Best Travel Credit Card Perks Beyond Points and Miles)

What are the best junk mail offers?

While most junk mail really is junk — either promotions for stuff you don't need, or offers that aren't a good deal anyway — sometimes the market research behind the junk mail works out, and you get an offer for a product you need at a price that makes sense, such as:

Credit card offers
Balance transfer offers
Loyalty programs
Bank bonus offers
Coupons for products that you buy regularly

Can you sell your junk mail?

There is a lot of information that can be gleaned by studying junk mail, so much so that you can actually get paid to send in your junk mail for analysis. A company called Small Business Knowledge Center (SBKC) processes junk mail to identify marketing strategies and provide competitive intelligence to their corporate clients. (See also: Here's How to Earn $170 a Year With Your Junk Mail)

How to get less junk mail

Many people don't find value in getting junk mail and would prefer not to waste the paper used to print it, or the time dealing with it. There are some actions you can take to cut down the amount of junk mail you receive.

OptOutPrescreen

OptOutPrescreen allows you to opt out of preapproved credit card offers. You will be asked to provide your social security number, but after you opt out, your name will not be reported in lists provided by the credit reporting companies to credit card marketers.

DMAchoice

DMAchoice is a service run by the Data & Marketing Association (DMA) that allows you to cut down on the amount of direct mailings and catalogs you get. You can use their online tools to select which types of marketing materials you would like to receive — and which you don't want.

Catalog Choice

If you are plagued by too many catalogs filling your mailbox, Catalog Choice is another resource to opt out of unwanted mailings. They will send opt out requests to merchants on your behalf for specific catalogs that you no longer want to get.

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This article is from Dr Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Cutting Your Losses Can Save You More Than Money

Emily Guy Birken — Fri, 29 Sep 2017 08:30:11 +0000

Let's say you bought tickets in advance for an upcoming concert, but the day of the show, a friend invites you to do something you'd enjoy even more. If you're like most people, you'll choose to go to the concert anyway. You don't want to waste the money you've spent, even though you'd rather be somewhere other than the concert. Your aversion to losing the money you spent on the tickets (aka a "sunk cost") means you give up on doing something more enjoyable.

A sunk cost is the time, money, or resources that have already been spent — and cannot be recouped — on a project or goal. Sunk costs should not color your decision whether or not to continue with a project, because the money and time has already been spent and cannot affect the outcome.

The sunk cost fallacy is farther reaching than just financial decisions, though. It can also cost you much more than money if you fall victim to this fallacy. Here are five ways the sunk cost fallacy can affect various parts of your life beyond your budget.

1. Staying in a job you hate

When I was in high school, my mother very suddenly had to find a new dentist. The one she'd been going to for years had decided to quit dentistry and go back to school to become an accountant, which was what he had always wanted to do. We made a lot of jokes about it at the time, even though we were very happy that he was finally following his passion for accounting.

This dentist had been practicing for over a decade when he decided to make this enormous career change. His family had pressured him to pursue dentistry, and it seemed like a waste to have gotten all that schooling and not practice. Once he became a dentist, each year that passed was another year that would have been "wasted" if he changed careers.

Luckily for him, this dentist came to realize that his time at dental school and in practice was "wasted" anyway, since he did not want to be a dentist. Continuing in this profession would be wasting even more time because he'd be following a path he didn't enjoy.

Many people who are stuck in jobs they don't like are not nearly as clear-eyed about their own professional sunk costs. If it feels like a "waste" of your time or education to get out of a job that is making you unhappy, then you are falling victim to the sunk cost fallacy. How you have spent your professional training and time up to this point doesn't matter if you're on a path that doesn't interest you.

If you're worried about wasting what you've already sunk into a hated profession, make like my dentist and pursue what you truly love. (See also: 6 Ways That Job You Hate Keeps You Poor)

2. Staying in an unhappy relationship

If you regularly read dating advice columns, sooner or later you'll come across a letter from someone who wants to end an engagement, but feels like they can't because deposits have already been paid, people will be disappointed, and Great Aunt Hilda has already bought her plane ticket for the wedding.

In short, these cold-footed would-be brides and grooms are focused on the sunk costs of the upcoming nuptials. That's because thinking about the loss of money, face, and Great Aunt Hilda's respect makes it difficult to clearly see the huge benefit of calling off a wedding: Not marrying the wrong person.

Of course, the sunk cost fallacy doesn't just lead you down the aisle with the wrong person. It can also keep you in a relationship with someone who doesn't want the same things you do.

If humans were able to think rationally about our relationships, it wouldn't matter that the deposit on the swan-shaped ice sculpture for the reception is nonrefundable. In this scenario, a rational decision would be to determine if the marriage or the current relationship is what you want and make your decision from there. But we all have a tendency to make current decisions based on what we've invested up to this point.

So, we enter into marriages we're unsure about because we can't stand the thought of losing catering deposits, and we stay with partners who don't offer us what we want in a relationship because we can't stand the idea of losing all the time we've already put in.

3. Sticking with entertainment you're not enjoying

I'm ashamed to admit I watched the entire final season of a show I ended up hating. It was a truly terrible season of TV and it included virtually none of the characters that had made the previous seasons of the show charming and funny. So why did I endure 286 minutes of this show when I didn't have to? Because I had invested eight seasons in the show, and, by gum, I was going to finish it.

My entertainment sunk cost experience is hardly unique — and game developers have actually taken notice of this quirk of our brains. Facebook game Farmville, which at its peak had 84 million people playing, was created to take advantage of the sunk cost fallacy. Since you could lose the time and money you have invested in the game ― your crops and livestock would die if you neglected the game too long — many players would return over and over again to protect themselves from loss. They weren't enjoying the game anymore. They simply didn't want to lose their investment in it.

Despite the fact that Farmville was simply pixels on a screen, we have a tendency to stick with entertainment we dislike just to protect our previous investment or time. (See also: How to Resist the Expensive "Once in a Lifetime" Mentality)

4. Eating food you don't want

As a parent, I've often found myself finishing meals my kids have only nibbled at, to keep from wasting food. Even before I had children, there would be times I'd force myself to finish eating something after I was already full, for fear of wasting money.

The problem is that the food is just as wasted if it ends up as extra padding on my hips. The money and time has already been spent buying and preparing the food, and it's not as if I could actually send the excess to starving children in other parts of the world. Finishing the food simply takes away the visual reminder of the waste (until it shows up on my body). It does not negate the waste of buying and preparing food my kids refuse to eat or eating at restaurants that make portions too large to finish.

If I'm full, I should stop eating, since the food in front of me is already a sunk cost. I should also get better at preserving the leftovers for future meals and reducing said food waste. (See also: How to Keep Food Waste From Spoiling Your Budget)

5. Keeping a cluttered house

All across the nation, there are bread machines and stationary bicycles gathering dust in basements, attics, and garages. I personally have a set of adjustable weight dumbbells in my basement that cost $300 and have been used fewer than a dozen times.

The sunk cost fallacy keeps these unused items in our homes. We refuse to part with something we spent "good money" on, despite the fact that we would be happier with uncluttered homes.

Even if we do decide to clear house, we often want to get back what we put into the items we don't use. The fact that we spent "good money" on an exercise bike or small appliance blinds us to the item's current value. We recall spending several hundred dollars for the unused item, and we hate to "lose" that investment by selling our stuff at a loss. But now that the item is covered with several years' worth of basement dust and it smells slightly moldy, its value is much lower than it was when we bought it.

This sunk cost fallacy makes us believe that we can't get rid of unused items unless we can sell them for at least what we paid for them — forgetting that the money we spent is sunk, and that having a less cluttered house would improve our lives. (See also: 10 Smart Ways to Keep Your Entire Life Clutter-Free)

Don't let sunk costs sink your decisions

The simple (but not necessarily easy) way to handle the sunk cost fallacy is to consistently check in with yourself. Ask yourself, "Is this really what I want?" and be honest when you answer. This question can help you decide what to do, whether you're staring down a career that you feel ambivalent about, a marriage that doesn't feel right, another episode of a show you're not enjoying, a French fry that you're not hungry for, or a panini press you haven't used since the first Bush administration.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Most Popular Ways Americans Spend Their Tax Refunds

Andrea Cannon — Mon, 03 Apr 2017 08:30:18 +0000

According to the IRS, the average tax refund in 2016 was $3,053. While we here at Wise Bread generally advise against giving the government a free loan all year, there's no arguing that a tax refund can go to good financial use. But how, exactly do most Americans spend their newfound chunk of change?

What do most people spend on?

Fortunately, the majority of people use their tax refund to pay down debt, save, or invest. In a poll conducted by GoBankingRates, 41 percent of people deposited the money into their savings account and 38 percent used it to pay off debt.

More than half of millennials plan to use their refunds for savings and debt repayment. This is a major change from previous years, when the tendency for this age group was to spend on splurge purchases (clothes, video games, new shoes, etc.). Gen Xers are the second group behind millennials most likely to use their refund for debt repayment, and younger Gen Xers (35–44) are the second most likely behind boomers to fund a vacation. While baby boomers age 65+ are less likely to receive a refund, they are currently more likely to spend it on a vacation or splurge purchase than other generations. Despite more boomers spending on themselves, 42 percent still allocate their refund to savings.

Smart ways to use your refund

If you're getting a tax refund this year, you might be tempted to splurge. While there's nothing wrong with treating yourself once in awhile, your money would be better spent in these smart ways.

Boost your emergency fund

You should have three to six months' worth of expenses saved for a financial emergency. If your savings account could use some padding, this is the perfect time to save without feeling the burn. Your future self will be grateful for your savviness. (See also: 50 Smart Things to Do With Your Tax Refund)

Pay down debt

According to a GoBankingRates survey, the top source of financial stress for Americans is paying off debt. Fortunately, your tax refund can help ease that stress. Consider using the money to make an extra mortgage or student loan payment, or help tackle your high-interest credit card debt. (See also: Fastest Way to Pay off $10K in Credit Card Debt)

Invest it

If you already have an emergency fund to fall back on, then consider using your refund to pad your retirement accounts or other investments. You can also begin diversifying your portfolio to mitigate risk and potentially increase your returns.

Invest in yourself

If you've considered taking classes, focusing on your hobbies, getting in shape, or starting a small business, then it might be worth using your refund to fund these ventures. By investing in yourself, you'll continue benefiting from the refund over time.

Make small home improvements

Have you been putting of small fixes around the house? It's time to tackle them now before they turn into a bigger problem. Simple upgrades are not expensive, and can result in a higher resale value and future tax benefits. (See also: 10 Cool DIY Home Improvements for $20 or Less)

Donate it

If you're feeling financially secure in your own life, consider paying the funds forward. Donating your refund to a worthwhile charity ensures that the money is going to great use. It can also reduce your taxable income for the next tax season. (See also: Can I Write It Off as Charity?)

Treat it like a paycheck

Figure out how much of your paycheck you allocate to certain expenses each month (food, mortgage, gas, etc.) and treat your tax refund the same. Don't forget to include any debt payments. Just like a typical paycheck, you might even have a small amount leftover to use for something fun.

This article is from Andrea Cannon of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Careful! Your Credit Card May Be Sharing Your Private Info

Dan Rafter — Wed, 25 Jan 2017 16:32:04 +0000

In 2015, a study conducted by the Massachusetts Institute of Technology found that scientists were able to use the information from credit card purchases to correctly identify the names of the consumers making the charges. Their accuracy was a staggering 90% — and they only looked at four transactions.

These scientists could do this even after credit card companies anonymized the transactions, erasing the names and other personal details of the cardholders doing the buying.

You might be surprised at just how much your credit card provider knows about you, and has known for a while. Take for example the 2008 case of Kevin Johnson, who received a letter slashing his credit limit by $7,000 because his credit card provider didn't approve of the stores he frequented. These stores, they claimed, were common shopping hot spots for people with poor repayment histories. This kind of profiling ignored Johnson's solid 760 credit score in favor of the data it was secretly gathering. And although Johnson's card provider later abandoned the policy, the question of ethics had been raised.

Though the concept of credit card data sharing can be a little unnerving, it's not all harmful, either. Over time, your credit card provider can piece together a detailed history of your spending habits to help you find relevant sales, coupons, or services. If you charged the purchase of a new couch, for example, you might suddenly see advertisements from stores selling home furnishings. You might even receive a mailing from a mortgage lender wondering if you want to refinance your mortgage loan.

So, exactly what information is your credit card collecting and how does it affect you?

1. The Type of Food You Like

Do you eat at the same four restaurants each month? If you charge these meals, your credit card provider will take notice. You might start receiving coupons for discounts at these restaurants.

2. Where You Like to Grocery Shop

If you do the majority of your shopping at one grocery store, don't be surprised if you start receiving mailings informing you of weekly specials. You might even be asked to join that store's preferred shopping program, which could save you even more money. (See also: 9 Store Loyalty Programs That Are Worth It)

3. What You Like to Buy Online

Many of us are turning to online shopping as a way to beat the stress of visiting brick-and-mortar stores. Just know that your credit card provider will be happy to share your online shopping habits if you pay with plastic. If you buy flowers for every Valentine's Day, birthday, or anniversary, local and national florists might start targeting you with advertisements boasting of their own specials.

4. Details About Your Financial Health

Your credit card provider can glean much about your financial health through your transactions. If you are constantly shopping at thrift or secondhand stores, this could be a sign that you are struggling financially. If you decide to request a credit line increase, or an APR decrease, you might not be approved. Or even if you decide to apply for a new credit card with the same bank, they might use this information in their decision. Of course, you might also start getting advertisements from companies who target such consumers — everyone from mortgage lenders eager to refinance your home loan to a lower interest rate, to insurance providers eager to get you into what they consider a lower-cost auto insurance policy.

5. The Medications You Need

Ever charge your visits to the doctor or dentist? Maybe you also charge your prescriptions? Don't be surprised if this information is shared, bringing advertisements from a host of medical providers. If you prefer that your medical histories and treatments remain private, you might want to pay with cash instead.

So — What Are the Privacy Rules?

Thanks to the Gramm-Leach-Bliley Financial Modernization Act of 1999, you'll receive a privacy letter from your credit card provider when you first open your account and, in most cases, once every year thereafter.

The letter will state how your credit card provider intends to use your personal financial information. It might state that your provider uses information from your transactions for its own internal purposes.

Your credit provider usually will state that it might share your financial information as a way to market its own products and services to you, and that it will share your information with affiliated businesses. Maybe the parent company behind your credit card also runs a mortgage business. It might share your information with this affiliated business unit, meaning that you might be targeted for refinance and mortgage advertisements.

The letter might also mention that your provider will share information about you with nonaffiliated companies. These are outside companies that aren't a part of your credit card provider's family of business units.

How Can You Limit What's Shared?

You do have some control over how your credit card company shares your information. Read the privacy statement you receive each year. It will tell you how to opt out of some of this info-sharing. You might have to call your provider, write a letter, send an email, or fill out an online form.

You can't opt out of all sharing, though. The Consumer Financial Protection Bureau says that you can stop your credit card provider from sharing information with nonaffiliated companies. You can also stop your provider from sharing information that appears on your three credit reports — one each maintained by Equifax, Experian, and TransUnion — with affiliated companies. The bureau, though, says that you can't stop your provider from sharing information with affiliated companies when that information is based solely on the transactions you have made with your credit card.

If you are uncomfortable with the information that credit cards gather about your spending, make sure to read the privacy notices carefully and follow the instructions to opt out, and then try to make your purchases in cash.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Things Americans Spend Too Much On

Mikey Rox — Wed, 26 Oct 2016 09:00:11 +0000

We're all guilty of spending too much money at some point or another. Even when we know the importance of a good budget and have a regular savings routine, we can get off track. Because Americans are big spenders in general, it should come as no surprise that we spend way too much on stuff we don't need — and, interestingly, stuff we do need.

Whether you realize it or not, here are five things you're probably spending too much on.

1. Groceries

We need food for survival, and because food is a necessity, some people never think to calculate how much they actually spend on food on a yearly basis. They don't know if they're spending too much.

There are no hard and fast rules regarding how much we should spend on food every year. But considering how a trip to the grocery store can be just as tempting as walking through a clothing store, there's a good chance that we're spending more than we need.

According to the Bureau of Labor Statistics, a family earning $69,629 in 2015 spent an average of $7,023 on food (includes food at home and away from home), which comes to about $585 a month. The cost of food periodically increases, so we can expect slight increases in our grocery bill. But there are plenty of ways to shave down this number and save.

Clipping coupons, signing up for grocery store loyalty cards, and resisting the urge to stock our carts with stuff we don't need — such as unhealthy snacks — can result in big savings. And if we limit the amount of times we dine out every month, the savings increase.

If you reduce your grocery bill by as little as $20 a week, that's a savings of $1,000 a year. Buying less also makes sense considering how "a four-person family loses about $1,500 a year on wasted food," according to the National Resources Defense Council.

2. Bottled Water

If you're looking for ways to save on groceries, you can start by cutting bottled water from your grocery list. Bottled water has become a necessity in many U.S. households, with many people preferring this over tap water for various reasons. Some people don't trust their city's water supply and others simply enjoy the taste of bottled water.

But our love affair with bottled water is costly. On average, Americans spend about $11.8 billion on bottled water every year, and the average person in American consumes 167 plastic water bottles annually. Given the average cost of $1.45 per bottle, that's $242 a year per person, which is expensive considering how we can purchase a reusable water filter for $30 or $40.

3. Coffee

If you broke the habit of buying coffee every day, you probably think you're saving money — and maybe you are. Brewing your own coffee at home is supposed to save, yet a new study found that Americans are spending more on coffee than ever before, despite drinking less due to single-serve coffee machines.

It's predicted that Americans will spend $13.6 billion on coffee in 2016, which is up from the expected $12.8 billion in 2015. This is primarily due to the fact that more Americans are drinking single-serve cups and paying a premium for this convenience. Using K-cups can cost up to five times more than using a coffee pot. Fortunately, there are ways to save like purchasing a reusable filter for Keurigs and other single-serve coffee pots, as well as skipping the grocery store and buying K-cups from discount stores or online from Amazon and eBay.

4. Housing

Once you're ready to buy a house, you'll seek a property that offers everything you're looking for and more. But getting everything you want comes at a price, and unfortunately, some people buy more house than they can afford.

A competent mortgage lender won't approve a loan for more than you can afford. But if you have excellent credit, some lenders are flexible and they'll allow you to spend a greater percentage of your gross income on housing. But just because you're approved for a particular loan amount doesn't mean you should spend your max.

Whether you're renting or buying, keeping house payments below your means creates more disposable income that can go toward saving a rainy-day fund or paying off debt. According to a 2014 report, millions of Americans spend too much of their monthly incomes on housing — more than 30% of their income. Ideally, house payments should be no more than 28% of your gross income.

5. Weddings

Weddings are a special day. If you stay together forever, this can become one of the best days of your life. But just because weddings are a memorable event doesn't mean you should wipe out your savings or go into debt.

In 2015, the average cost of a wedding increased to $32,641. Some people could argue this is a reasonable amount. But given how nearly one in two marriages in the U.S. ends in divorce, spending this type of cash is a waste of money.

Even if a marriage never crumbles, $32,000 is too much to spend on a day that's only the beginning of your journey together. Rather than begin a marriage in debt or wipe out your savings account, plan an inexpensive ceremony and put the majority of the money toward a home purchase or save it for the future.

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Financial Wake Up Calls — And How to Deal With Them

Mikey Rox — Thu, 04 Aug 2016 09:00:08 +0000

Can't seem to get a handle on your finances? That in itself is a wake up call that you need to be doing things differently. Here are eight more.

1. You Use Personal Credit Cards for More Than One-Off Expenses

Some personal finance experts recommend automated billing for recurring expenses, but I don't usually suggest it since I like to be in control of when and where my money goes. But charging expenses to your credit card on a regular basis is a different story. Credit cards should be used for one-off expenses that you'll pay off quickly, not month-to-month bills that can rapidly pile up without being paid.

"Credit card companies work hard to make their cards not feel like a personal loan with an abhorrent interest rate, but that's what they are for a lot of people," says money-saving expert Mike Catania. "Once regular consumers start putting recurring expenses onto the cards and not paying them off fully on the due date, it's time to re-evaluate the financial picture."

If this is something you do or have done in the past, switch to automated billing linked to your debit card. You'll need to commit to being financially responsible — like, all the time — to ensure that you can cover the funds during the fund extraction period. It'll require a change on your part, but it's not the worst habit you can pick up.

2. You're Constantly Complaining That You Never Have Enough Money

I know way too many people who complain that they're always broke, and my first question is, "Why?" If this sounds familiar, it's time to ask yourself that question — seriously. In most cases, there are two common answers: One, you're spending too much money on frivolous things, and two, you're not making enough money because you're spending too much time spending money on frivolous things.

Follow me?

To change that scenario, curb your spending. You don't need all those new things, and you shouldn't be in bars and restaurants every night of the week. Also, consider getting a second job. I recently started driving with Lyft to help curb my own Friday and Saturday night habit of going out with my friends and spending dough. So I'm not just sitting at home bored, I thought it would be helpful to find something fun to do that also will pay me — because I like money way more than the feeling of not having enough of it.

3. You've Been Drowning in Debt for Most of Your Adult Life

Nobody is going to shake a finger at you because you made a few (or more than a few) financial missteps in your 20s. We've all been there, and we've all racked up debt. But if that black cloud has followed you into your 30s or even 40s, you need to re-evaluate your entire life philosophy.

Some debt is unavoidable, of course. I consider school loans and home mortgages "good" debt because they're investments, but if you've got credit card bills coming out the wazoo because you like to spend money, it's time to forget the Joneses and get back to reality. You may need an additional source of income to address the debt — which I'll cover below — but you need to do whatever's necessary to get out of the hole you dug, stat.

4. You're Well Into Your 30s And You Haven't Started Saving for Retirement

Times aren't like they used to be, and many young professionals don't have the extra money to start building their retirement funds. But, I must advise you to find that extra few bucks a month to put toward a 401K or other retirement-savings account, and take advantage of matching dollars from your employer if they're available. You may not be able to max out contributions right away, but that's okay — you've got to start somewhere. If you don't, you'll be middle-aged before you know it and fretting that you won't be able to survive retirement — or worse, not able to retire at all.

5. You Skip Contributions to Your Savings Accounts for Months in a Row

If you haven't made contributions to your savings account for several months in a row, something's wrong. Maybe you've had unexpected expenses pop up, or maybe you just haven't been as responsible with your money as you're supposed to be. Whatever the case, the fun's over; it's time to get back on track. Take a deeper look at where your money is going and see what you can pull from to put a little back in your savings account. Maybe it's canceling an entertainment service or it could be skipping the coffee house or lunches out during the week. Whatever you would've spent on those little luxuries, send that amount to your savings account to start building it back up dollar by dollar.

6. You Only Have One Source of Income

I touched on this point earlier, so let's get down to it.

One of my financial life philosophies is to always have more than one source of income. Personally, I have about four income sources — some bring in more than others, but they all contribute to the "pot." I don't need all of these revenue streams to survive, I could live without one or two of them, but I don't want to. I don't want to, because that extra one or two help me add to my savings, pay for life's little luxuries and experiences, and cover unexpected expenses when they arise. Without them, I would have to dip into my regular income, which would then take away from my savings and other running funds I keep, which in turn could lead to a dangerous debt situation if I'm not careful.

There are absolutely no downsides to having two sources of income or more, and not a single person has ever said how frustrated or stressed they are because all their bills are paid with money to spare. No one. Ever.

7. You Keep Track of Expenses by Browsing Your Checking Account Online

I see this way too much with 20 and even 30-somethings who monitor and manage their finances by simply browsing their online checking and savings accounts. Sure, peeking at your accounts on a regular basis is good practice, but that's not enough. You really ought to have a formal budget established (a spreadsheet is an ideal solution for this) that details your monthly expenses and what's coming in and going out. Yeeees, it requires some effort on your part — at least more than logging into your banking app with Touch ID — but it's well worth it to avoid teetering on the edge of overdraft all the time.

8. You Spend Until There's Just Enough Left to Avoid Overdrafting

Speaking of teetering on the edge of overdraft, stop doing it! There's no reasonable explanation that you're spending money until you're within a few dollars or cents of being slapped with an overdraft fee.

You know why? Because you can't afford it! You have zero dollars in your account at that point, which means you messed up somewhere. If you couldn't afford whatever sent you over the edge, you can't afford the hefty overdraft fees, either.

To avoid this situation, here are my tips: When you see that thing at the store that you have to have, walk away. When you want to order that pizza because you're hung over or too lazy to cook dinner, get up off your butt and recognize that this exact scenario might be why you're broke in the first place. When your friends ask if you want to go out and you see that you only have $20 left in your account, just…say…no! You're allowed to do that, ya know, and nobody will stop being buddies with you and the world won't end. I promise. Instead, spend that time to reflect on why you have $20 to your name (seriously, think about that long and hard) and how you can change that. I've offered a few tips here already. The time is now.

Are you avoiding any of these — or other — financial wake-up calls?

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Can Saying Thanks More Make You Rich?

Claire Millard — Thu, 26 May 2016 09:30:18 +0000

If you're even a little bit cynical, you might be expecting a resounding, one-word answer to this question. I mean, since when did being nice ever get you rich?

But there is good news out there for those of us who still like to see the nice guy win once in-awhile. In fact, gratitude has a number of direct impacts on financial well being.

Gratitude Makes You Happy

Gratitude has been shown to make people happier — and happiness is known to have a positive impact on earnings.

In research, groups were asked to keep journals over an extended period, either simply writing down neutrally what had happened to them, or trying to find the positives to be grateful for. At the end of the study, the gratitude group were 25% happier than the neutral group, and reported fewer physical illnesses over the period.

A different study links happiness and earnings, with research which shows that adolescents who report higher levels of happiness go on to earn more as adults. There are probably a wide range of reasons for this — happier people take fewer sick days, build more positive relationships, and are able to focus more on the things that matter to them.

Gratitude Stops Spending

If excessive consumption is your downfall, then try practicing a little gratitude to get back on track.

Instead of lusting after another gadget or handbag, make a conscious effort to appreciate what you have — not only will you rediscover old pleasures, it will most likely slow your urge to spend.

Often the desire to shop comes about because of something known as hedonic adaptation, or the hedonic treadmill. This is the tendency humans have to slip back to an average level of satisfaction very shortly after large improvements or positive life events. So even though you get a massive pay raise, the enjoyment is short-lived, and you soon come to expect the extra salary. Similarly, the new phone you were yearning for is only truly impressive for a few weeks before you forget the novelty and start to think about your next purchase.

Gratitude can help overcome this tendency because it slows down the pace at which we get complacent about what we have — and by cutting out the excesses of spending, our financial wellness gets an immediate boost.

Gratitude Promotes Great Relationships

Relationships flourish with gratitude, and relationships are how business happens. So exercising a bit of gratitude can be a boon to your personal and professional relationships alike, making you happier and wealthier at the same time.

This dynamic in professional environments has already received much scientific and psychological attention. Studies dating back decades have shown that customers come back and tip more if they are thanked for their generosity. In one wonderful example (which I really wish I had come up with myself), restaurant servers handed over the check to diners — either blank, or with a handwritten note saying thank you, including a smiley face. This research showed that those who had written "thank you" on their checks received higher tips.

Because gratitude forges an immediate personal connection, it's a great way of opening the door to a developing relationship. In a work environment, that might be as simple as getting an extra few dollars tip, or it could be the start of something beautiful. You never know.

Gratitude Keeps You Healthy

Science shows you can cut down your medical bills by saying thanks. Seriously.

Don't take my word for it. Professor Robert A. Emmons is the author of a report on the impact of gratitude on health. He says gratitude "can lower blood pressure, improve immune function, and facilitate more efficient sleep. Gratitude reduces lifetime risk for depression, anxiety, and substance abuse disorders, and is a key resiliency factor in the prevention of suicide."

Not only all that, but those who are grateful also report having a stronger social network that can support them when they need help, as well as improving blood pressure, cholesterol and heart health.

Gratitude's impact on financial wellness is based on elements of scientific and psychological fact. It may sound far fetched at first, but saying thank you to others, and remembering to be grateful for what you have — rather than yearning for more — could really be the secret to unlocking greater emotional and financial well being.

What do you think? Crazy theories or common sense? How do you practice gratitude in everyday life?

This article is from Claire Millard of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why "Opportunity" Funds Are the New Emergency Funds

Claire Millard — Fri, 29 Apr 2016 10:30:04 +0000

You know your emergency fund is important to your financial well-being. In fact, it's a bit like flossing is to dental health. We know it's important. In fact, we know it is hugely beneficial. But do we do it? Well, no — or at least not like we should.

The emergency fund is a classic example of what has become known as the "knowing-doing gap." These are cases where know we should take action, yet we don't. That's because abstract thoughts about future emergencies — auto repairs or a leaking roof — are hardly compelling. An emergency fund, as vital as it may be, just isn't sexy.

If it's time for you to bridge the knowing-doing gap, and start future-proofing your finances, here's a smart trick to try.

Bridging the Gap

When it comes to an emergency fund, size matters less than habit. If you think that it's not worth starting because you can only spare a small amount, then you're kidding yourself. Small amounts regularly saved do mount up.

In reality, what prevents many people from saving is not a shortage of spare cash, but a lacking desire to build an emergency fund in the first place. After all, if you were really committed to saving, and prepared to fully audit your budget, you could probably find ways to trim your expenses a few dollars a week, or bring in some extra cash on the side.

But saving for an emergency fund is an inherently pessimistic and abstract thing. There is no conclusive rule to tell you how much you should have. You're saving for things that might never happen, and anyway, isn't just thinking about emergencies a little like tempting fate?

Opportunity Fund

The real barrier to saving an emergency fund, often, is in the mind. So instead of saving for an emergency fund, why not shift your thinking into a more positive groove? Decide instead to save an opportunity fund, so that you never need to fear missing an opportunity for want of cash.

How much more would you be motivated to save for some unknown opportunity that might present itself in future? Instead of saving as insurance against the stuff of nightmares, think about saving so you can grab an opportunity when it arises.

It is a whole lot easier (and more pleasant) to think about the opportunities that might come up in the future than it is to speculate about the disasters that might befall us. Imagine these scenarios, both with and without the financial cushion provided by your opportunity fund:

Your dream job comes up, but the salary doesn't stack up. What do you do? Your savings give you choices.
You have the opportunity to start your own business in an area you're passionate about, but starting out means living on less to begin with. Now you can weigh your options.
You decide to study again, and need to flex your finances.
Your best friend is about to embark on some pretty major travel plans, and you really want to join. Guess what? Now you can.
You choose to drop hours at work to care for family, to travel, or to focus on a hobby. Having an opportunity fund means that you can consider different routes.
You need (or want) to relocate suddenly. This could be for a good reason like a new job, love, or family. Don't feel stuck — your opportunity fund gives you the control you need to make the decisions that matter.

While an emergency fund feels like an exercise in damage limitation, your opportunity fund will feel like control, flexibility, and financial confidence. With those motivating factors on side, you are far more likely to make a savings plan and stick to it — even if it means trimming the spend a little elsewhere.

Naturally, once you have saved your financial cushion, it is there for you if an emergency should ever arise. But more importantly it's there as a comfort, an assurance that money worries do not need to be a reason to walk away from a great idea or opportunity. Doesn't that sound better?

What do you think? Do you have an emergency fund? Would you consider using it for a great opportunity instead?

This article is from Claire Millard of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Shopping Habits to Nix Before You Turn 30

Ashley Eneriz — Tue, 22 Mar 2016 10:30:07 +0000

Once you're in your 30s, people will expect you to have smarter shopping habits. Not only is it wiser to spend your money responsibly, but once you hit the big three-oh, you will need to focus your savings efforts towards retirement and buying a home.

Ditch these five bad shopping habits before you leave your 20s, and you will find that it is much easier to save money and hit your financial goals later in life.

1. You Buy What You Want

As an adult, it is time to realize that there are going to be many things that you want to buy. However, it is important to buy things you truly need rather than everything on your wish list. For example, you need groceries — but you do not need that tray of sushi or bottle of cold-pressed juice. Cutting out frivolous spending on whims and splurges will drastically change your finances.

This is not to say there is never room for splurges. Instead, budget a set amount of money each month that can be spent however you wish.

2. You Use Credit Cards Wrong

Credit cards can be helpful in your finances. However, if you are just pulling out your credit card every time you make a purchase, you are more likely to overspend and put yourself in a situation where you're living paycheck to paycheck. Using credit cards wisely is the key.

A smart way to use your credit card is to write down all of your purchases as if you were balancing a checkbook. For example, if you want to use your credit card for groceries, utilities, gas, and dining out, then set a budget for each one. Then you add all those budgets together, and every time you swipe your card, you deduct the cost from your total budget — either in a small notebook or on your phone's notepad. It might look like this:

$850

-$75 for electric bill (2/19)

__________________

$625

-$5.50 for fast food (2/23)

__________________

$619.50

Once you reach $0, stop using your credit card and pay off your balance. This allows you to benefit from the convenience of a credit card, without going into debt.

Also if you plan on using a credit card for majority of your spending, then you need to get a card that will give you a decent amount of return. Consider using a credit card that comes with an annual fee, because those cards usually come with better rewards.

3. You Don't Pay Attention to Your Budget

Financial experts are quick to push the idea of budgeting on others as a simple way to be in control of your finances. The truth is that budgeting is harder to stick with than it sounds. To stay committed to your budget, try establishing budget ranges rather than a set number. For example, budgeting $350–$425 per month on groceries allows for natural fluctuations, such as a good sale or having guests over for dinner.

4. You Emotional Shop

Feeling sad? Go shopping. Excited about a new job offer? Go shopping. Have nothing else to do on a Saturday? That's right, go shopping. As silly as this sounds, many people allow their feelings and mood to dictate when they go shopping. Shopping when you are stressed, bored, excited, or depressed are all easy ways to overspend and buy items you do not need and will not use.

This is where it is important to stick with a budget, and to evaluate what you are buying. Perhaps you are in Target, and you see a really cute dress. Before putting it in your cart, ask yourself if it is in your budget. Do you really need it? Do you have anything else like it at home? Realize when emotions are dictating your shopping habits and overrule them with logic. The best trick to try is walking away from a purchase for a day or two. If you still want the item later and it fits in your budget and needs, then go buy it.

5. You Don't Shop With the Future in Mind

As you enter your 30s, you should consider the future for each major purchase. For example, if you are planning on having children in the next two to three years, perhaps a small car is not the wisest decision. The same principle goes for buying houses, furniture, and more.

You should even consider the future with minor purchases. It can be as simple as paper towels going on a sale. Since it is predictable that you will use paper towels in the near and distant future, you should buy several months' worth rather than just one package. Remember to exercise balance when it comes to bulk buying, though. You will need paper towels for the rest of your life, but that does not mean you should buy a whole a year's worth!

Which shopping habit do you think is the most important to leave behind once you hit your 30s?

This article is from Ashley Eneriz of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: