1) LIFESTYLE INFLATION
With an increase in cash inflow (be it through salary, investments or windfall), many fall into the trap of needlessly spending much more than before as they think that they can afford it.
This is why we see many lottery winners and celebrities becoming bankrupt despite having a huge pool of cash. Many are tempted to upgrade their current lifestyle and spend extravagantly.
Regardless of how much cash increase we have, the fundamental financial management and smart financial decisions should still be closely followed.
2) UPGRADING AS A WHOLE
Imagine this. When we get a new shirt, we can have the tendency to get a new pants to match with it. This applies when we purchase new furniture, equipment or other consumer products as well.
This is known as the Diderot Effect which posits that “the introduction of a new possession into a consumer’s existence will often result in a process of spiraling consumption”.
It is essential for us to closely assess if the item is truly a need or a want. Applying the previously elaborated 24 hour rule (PM me if you need a refresher) can also facilitate clearer and more objective purchase decision.
3) DISCOUNTED PURCHASES
Discounts may seem to be the best opportunity to get our purchases. However, many a times, these discounts enticed us to purchase what we do not need.
Price discounts can make us purchase on impulse and quantity discount can make us purchase more than we need.
Have this mindset: When we purchase a $10 product with a 30% offer, we did not save $3, but rather, we will spend $7.