Among various bills, debts and life necessities, treating yourself to a fun purchase every once in a while is an important part of a healthy financial life — and can feel necessary to maintaining your mental health.
But impulse spending or splurging on discretionary purchases can easily get out of control and hurt your financial security.
What Is the Lipstick Index?
Data shows that people tend to increase their splurge spending on “affordable luxuries,” such as beauty products, when economic times are tough. It’s a phenomenon known as the lipstick index, a phrase coined in the early 2000s by one of the heirs to the Estée Lauder cosmetics empire. Unfortunately, this has an even bigger impact when money is tight and you can’t necessarily afford to do spend frivolously .
The phrase lipstick index might have you thinking it primarily affects women, but that’s not the case. Men shop to treat themselves just as much as women, and studies show they actually spend more doing so.
Read on to learn more about this trend and what you can do to curb impulse spending in your own life.
[Read: Inside the Psychology of Overspending and How to Stop.]
Splurge Spending: By the Numbers
The lipstick index describes a trend where consumers splurge on “affordable” discretionary purchases — like beauty products — when financial times are tough.
While Americans do treat themselves on splurge-like spending when times are tough, the gender connotations in the phrase lipstick index confirm stereotypes that women spend more, which is not necessarily true.
According to a recent study from Deloitte on splurge spending, 77% of global consumers spent money to treat themselves in the last month, despite only 42% of consumers believing they could afford to do so.
Plus, men were statistically just as likely to spend on these purchases as women, and they spend more. The disparity was greatest among the millennial generation, where men spent about $20 more on splurge purchases than their female counterparts.
And while personal care and beauty spending accounts for a big portion of splurge spending, Deloitte found that food and beverage purchases outpaced this category.
[SEE: 10 Best Money-Saving Apps]
Why Splurge Spending Can Hurt Your Budget
According to money-saving expert Andrea Woroch, splurge spending is especially risky for those living paycheck-to-paycheck or carrying credit card debt, as it ties up money that could be used to pay your bills, pay off debt or boost your emergency savings.
“If you’ve fallen into the trap of buying on impulse, it’s time to assess your spending habits to figure out what’s driving those thoughtless purchases,” Woroch says.
Chris Muller, vice president of Money Under 30 adds that there are long-term implications to allocating your money to the unnecessary purchases. For instance, if you took $300 per month you typically spend on unplanned purchases and invested it, you could see a significant return over time.
“While splurging can bring joy and satisfaction in the short term, it’s important to consider its long-term financial implications,” he says.
[Related:Shopping Rules to Slash Impulse Spending]
How to Curb Impulse Purchases
If you find yourself overspending, there are strategies you can follow to protect your financial security:
— Build fun money into your budget. Completely restricting fun purchases can quickly turn into a depressing reality, and may actually lead to a bigger splurge down the line. Instead, give yourself permission to spend on some purchases, Muller says. Make clothing, personal care and other items you often splurge on a line item in your monthly budget.
— Pay with cash. For some, paying with cash can help purchases feel more real, Woroch says. Additionally, using cash instead of a card puts a hard limit on your spending; when the cash is gone, you’re out of money. Swiping a credit card can feel unlimited if you aren’t careful.
— Identify spending triggers. “For instance, if you can’t resist a sale, figure out how to avoid temptations,” Woroch says. Others might spend when they are feeling down or at certain stores. Once you know what triggers your impulse spending, you can work to avoid it.
— Set a 24-hour rule. Often, splurge purchases are made in the heat of the moment and don’t hold as much value after some time has passed. You can make sure you really want or need an item you are considering buying by waiting 24 hours between finding the item and actually purchasing it.
— Remind yourself of financial goals. Splurge purchases can bring you joy, but when you make them, be sure to consider the impact on long-term financial goals with a less immediate return. Is the benefit from this impulse purchase worth interrupting progress you’ve made on longer-term goals like buying a home? If the answer is yes, you can make the purchase with confidence. If not, consider if you actually need it.
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Men Shop to Treat Themselves Just as Much as Women — and Spend More Doing It originally appeared on usnews.com
