7 tips for managing your online spending
Online shopping can break your budget with just one mouse click
From Amazon to Groupon offers to digital payment systems, it is easier than ever before to inadvertently rack up big balances on your credit cards. If you follow these simple tips from personal finance experts, though, you can easily keep your online spending in check.
Tip No. 1: Realize you're spending real money."A lot of people have gotten into trouble because it's harder to conceptualize money going out when you use your credit card -- and just clicking a button is even easier than whipping out your credit card in the store," says Kit Yarrow, a consumer psychologist and expert on the psychology of shopping.
Yarrow recommends finding ways to make your digital spending seem more real. For example, skip saving your credit card information on your favorite websites -- that way, you have to find your wallet and enter your credit card number to buy something. Also, use a money-tracking tool or smartphone app or even a notebook to keep a tally of purchases. "Make yourself very aware of the cost," Yarrow says.
Tip No. 2: Include online spending in your monthly budget.Whether you're splurging on shoes -- which would fall under the clothing category -- whipping out your smartphone to buy lunch with a digital payment system (eating out) or just buying some music you've wanted (entertainment), make sure to count and categorize your online spending.
Experts suggest going back over your last three to six months of credit card bills to see what you're now spending online and how it fits with your budget. "This is a good way to identify where to begin to make changes," says Eric Tyson, author of "Personal Finance for Dummies." He says: "Where spending becomes problematic is when people don't have a plan and just rack up debt."
Tip No. 3: Know when you're being targeted.The more information you share about yourself online, the easier it is for marketers to zero in on your weak spots and convince you to click and spend.
"Facebook is basically a way for marketers to stay in touch with and push products to their customers. That's how Facebook makes money," Tyson says. So, be careful what you share. "You might innocently click on a little item -- I like Starbucks -- and before you know it, you're getting inundated with ads for Starbucks," Tyson says.
Experts suggest you think twice before declaring your love for a product or service online or inviting solicitations into your e-mail inbox. Or, at least recognize when you're being targeted and avoid spending on a whim.
Tip No. 4: Don't buy into online pressure tactics.It's important to recognize that some online sellers use high-pressure tactics to make you want to buy. Take the rise of flash sale sites -- online retailers that offer steep discounts on items ranging from designer clothes to high-end vacations -- for a limited time only.
"I'm hearing about one consumer after another getting into trouble on flash sites," Yarrow says. "The thing that gets you is you go on these sites and notice that about a third of the things might be in other people's [virtual] carts or sold out already. It has the same psychological effect as going into a store and seeing whole group of people hovering over a table of sale goods."
Worse, some sites limit the amount of time the item can sit in your cart -- pressuring you to buy quickly. If you tend to overspend on sites such as Ideeli, Rue La La and One Kings Lane, Yarrow recommends staying away. "Most people I talk to who have walked away [from a purchase] say they quickly forgot about the item," Yarrow says.
Tip No. 5: Watch out for items you never knew you wanted.Does the latest Groupon offer have you dreaming of taking a fencing class, getting liposuction or going on a hot air balloon ride when you never wanted to before? If so, step away from the screen, experts recommend.
"You have to think, 'Do I really want it or is it something I never even thought I needed?'" Yarrow says.
If you do sign up to receive offers from sites such as Groupon or Restaurants.com, you need to be strategic to get real deals, says Lita Epstein, author of "The Complete Idiot's Guide to Improving Your Credit Score." First make sure you know how the site works and when it offers the best deals, make sure you're buying items you love or would have purchased anyway -- and don't be afraid to wait, she recommends. Tyson agrees: "If you weren't actively in the marketplace for that product or service, don't buy it. Or, at least don't buy it today."
Tip No. 6: Use tricks to limit online spending.If you tend to overdo online shopping, put measures in place to make it harder to overspend. For example, Epstein recommends designating one credit card for online shopping. "Let's say you've decided you can spend $300 a month. Get a credit card with a $300 [limit] and make that the only one you use online." Other experts recommend using debit cards online, but Epstein isn't a fan because if you become a victim of fraud, it can take weeks or months to recover your money. If you do use a debit card for online shopping, Epstein recommends opening a separate -- free, if possible -- checking account in which you keep a limited amount of money, so thieves won't have access to all your cash.
Tip No. 7: Check your credit card accounts regularly.The best way to keep track of your spending -- and to check for fraud -- is to monitor accounts regularly. Manisha Thakor, personal finance expert and founder of the Women's Financial Literacy Initiative, recommends signing up for a weekly alert from your credit card company.
"I have an alert set up to send me a transaction history every Friday," Thakor says. "If you do it daily, you might think, ‘I'm too busy to look at this,' and just ignore it, but once a week is perfect. Alerts are so easy to set up now."
The founder and CEO of the personal finance website LearnVest.com, Alexa von Tobel, says regular monitoring also prevents overlooking recurring charges for movie subscriptions or other services." You should never be able to forget you have your credit card number on file somewhere if you're paying that much attention to online purchases," von Tobel says.
It's true that it's never been easier to spend money online, but if you follow these tips, keeping your digital spending under control should be just as simple.
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