Study on Why You Will Overspend This Season Comments22 Comments

You Will Overspend
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My wife Sam and I took a trip to the outlets to “browse around.” I needed a new winter coat and we had seen some deals for Sam to look through, but didn’t want to rack up a ton of credit card debt.

We end up, however, in a small, popular (expensive) fashion store which happens to hold Sam’s dream purse. I had been trying to put off the purse purchase for a while, but there was no escape this time.

Looking around at the high-end purses, I sneak peeks at the prices: most are over $400!

I’ve been wanting to get her one of these for a while, but I never knew the price got that high. So we look around some more, the eager salesman complimenting her with every purse she touches.

A couple go for low-$200′s but we find one for a little over $300 that she likes. I’m surprisingly comfortable with that and we head out.

Next, we head over to look for a winter coat in another store. Instead of being my usual frugal self and looking at the $30-$50 winter coats, suddenly I’m picking up $150+ coats without a care and then leaving with one.

What just happened is what Robert Cialdini (from his book “Influence”)calls the “perceptual contrast principle.”

A guy, who normally wouldn’t dare spend more than $50 on a winter coat, pays $150 for a coat without a thought. Why? After shopping for purses where we found prices over $400, getting a coat for $150 pales in comparison to $400. At the purse store, after seeing prices over $500, what’s the difference between a $200 purse or a $300 purse? It becomes a triviality in your mind at this point.

This principle will happen millions of times over this season and most won’t even know it hit them!

I was intrigued so I asked Sam, who sells tuxes and expensive suits at her work, if she notices this principle in action. She pondered for a second then observed, “Well, we have these $90 plain button-ups that never get sold individually, men only buy them with the suit.”

No one will go into the store and just buy a $90 shirt, but once he buys a $400 suit, a $90 shirt seems like an afterthought.

This principle can eat away at your budget, so what can you do to avoid the “perceptual contrast principle?”

When you need big-ticket items, make sure you buy the cheapest items first. Don’t go buy the 60′ HDTV, then go look for gifts for your kids. You’ve just bought an expensive item, so anything you see after that would be a huge contrast; so a shopper’s tendency is to buy more expensive items at this point.

Map out what big purchases you plan that day and go from there. If you spend too much on the smaller items, you will more likely spend less on a big ticket item as going over our initial budgets usually tug at us for a while.

For once-a-year purchases, make sure you set a budget for how much you wish to spend, then go look in that price range. Don’t set a budget than go peruse in the over-budget section because the perceptual contrast principle will automatically begin.

If you’re shopping online, set the price ranges right off the bat. If you go in the store, perhaps get an idea first online and present it to the salesman.

Foresee this happening so you’re aware. You will be able to catch yourself if you are aware it could happen to you! You’ll then start catching yourself all the time which could add up to $100′s!

When you’re shopping this season, make sure you think about the impact of each and every purchase. If you find yourself creeping over your budget, stop, refocus, and look behind you because the perceptual contrast principle could be right behind you!

Author Bio: Joe Cassandra, a Personal Brand Equity Strategist, is the Founder of the 7Minute Entrepreneur, where he shows you how to attack your life with the Mindset of an Entrepreneur in the areas of personal finance, careers, entrepreneurship & more. You can follow him on Twitter.

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By : Adam | 27 Feb 2013
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22 thoughts on “Study on Why You Will Overspend This Season

  1. William Cowie

    Excellent observation. How often the way our brain works trips us up without us even knowing it! This is another reason for shopping online, one item at a time. The internet allows me to use that principle in my favor, because I can shop for one item at a time and I can comparison shop for that item in isolation.

    Reply
    1. Joe Cassandra

      Very true William, Online you can jump to different stores and go back and forth with a click of a button + not having someone trying to sell you either :D .

      The problem you can run into still is looking for items and your eye getting caught at the shiny, more expensive item and suddenly you’re justifying the price in your head.

      It’s a tricky way our head works!

      Reply
  2. cat

    Very true! I found the same when we bought our first house – that was so much money going out that I didn’t worry about anything else then – it was small potatoes.

    Reply
    1. Joe Cassandra

      Exactly Cat. It definitely happens mostly with the big purchases. you can use this principle to your advantage when negotiating by agreeing to THEIR price but asking for little concessions (throw in a fridge, closing costs etc.) and those costs are small in comparison to the house.

      Look for those little wins that could add up to BIG wins

      Reply
  3. Edward Antrobus

    Actually, when I bought my big screen tv last year, two thoughts went through my head afterward regarding shopping. One was “OMG. I just spent $600 on a TV, I don’t want to spend another penny.” The other was: “I don’t want to do any more shopping or anything else that is going to delay plugging this sucker in!”

    Reply
    1. Joe Cassandra

      Haha! I had that same feeling when I bought my PS3 and too many games to count, “Screw what I paid, plug and play, plug and play!”

      Now I find their re-sell value is $0!

      Reply
  4. Justin @ The Family Finances

    I ran into something somewhat similar when we were house-shopping. We had a set price range, but when you’re talking about a purchase that big, going above your target by $10-20 thousand doesn’t seem like so much (at least to my wife). Luckily I was able to rein her in, and we stayed within our range, but the same thing applies

    Reply
    1. Joe Cassandra

      You must be immune Justin :),

      It’s weird how it works, people get upset when McDonald’s raises it’s Double cheeseburger price from $1 to $1.20, but when we look at houses & other big purchases, we’re more than willing to go up by $1000′s of dollars..

      Reply
  5. Grayson @ Debt Roundup

    I never thought about this, but it is true. This happened to me when we were purchasing our couch a few days ago. Since I was already pulling the trigger on the couch, what was another chair and ottoman. I would have never purchased them separately. Nice article.

    Reply
    1. Joe Cassandra

      Thanks Grayson, it’s little things we don’t realize when we shop. That’s why I put in there as well how to AVOID it before it starts.

      My wife and I just bought a new laptop and I had already came across this idea and we had set a certain budget, and made sure not to peek at some of the higher-up laptops so not to get pulled in. On top of that, when you get the laptop in your cart, you get a list of about 20+ items to “Add-on” that are usually $150 or less, so most will just go down the list bc it’s such small money compared to nice laptop prices.

      I avoided all that by planning ahead what I wanted exactly and it worked!

      Reply
  6. Lou Rodriguez

    I like the mention of the “perceptual contrast principle” as I’ve definitely “been there – done that.” But not anymore. After my crash and burn, I follow the motto of “use it up, wear it out, make it do, or do without!”

    I also think about the impact of each and every purchase, regardless of season or reason. There is a psychology of consumerism constantly at work that most consumers have no idea about. Good post Joe :)

    Reply
    1. Joe Cassandra

      Thanks Lou, definitely pick up Cialdini’s book, it’s great. That’s a great motto to live by and definitely agree about the psychology of consumerism. We always need more stuff!!!

      Reply
  7. jose

    That’s a really interesting perspective and although I’ve never given it conscious thought, I can absolutely see how it applies. A similar concept might be the saying that “everything is relative”. a $500 painting might seem expensive when considered on it’s own, but if you buying a million dollar house to put it in then it’s not really that expensive relative to the price of the house. The only place that I can think of where this theory falls apart is when you see $2500 worth of rims on a $1500 car. What in the world were they thinking? :D

    Reply
    1. Joe Cassandra

      “everything is relative” in our minds is right. We’re always comparing things, looks, things, hair whatever…that’s why we got to catch ourselves especially when it comes to our money!

      Thanks for your insight Jose

      Reply
  8. Canadian Budget Binder

    Interesting article but true, buy the cheapest items first then spend the big bucks. I know, I’ve done this before, oh heck it’s only x amount compared to the $1000 we just spent. It’s so important to stand our ground, know the prices and understand why we purchase what we do. Good read.

    Reply
    1. Joe Cassandra

      Thanks CBB, definitely something to think about when you plan on some big purchases i.e. Christmas! Thanks for commenting

      Reply
  9. Kim@Eyesonthedollar

    I think it’s pretty easy to talk yourself into spending money or making yourself think it’s a good deal when you do spend money. It helps me to stay away from random trips to stores I like .Otherwise it’s tempting to spend too much.

    Reply
    1. Joe Cassandra

      Yep that’s the problem with the “consumer” mindset. We make many decisions on a quick whim and end up buying thinking we spend less than we really did until we look at our bank accounts…

      Reply
    1. Joe Cassandra

      Sounds good if you want to map out the store and find where to start cheapest first :D , a standard grocery list has always worked for us, it’s more with merchandise purchases that many go astray i.e. electronics, even clothes

      Thanks Alex!

      Reply
  10. JP Smith

    I get in big trouble when I start shopping online. True, I will bargain shop for the best deal on the initial item I am looking for, but I know full well that by the time I make it to the checkout my online shopping cart will have a lot more in it than just the part or item I really need.

    Reply
    1. Joe Cassandra

      Don’t cha hate when that happens! Especially with high priced merchandise, make sure you know what you want before you start or you end up with an overflowing cart

      Reply

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