Watch those marketing messages

Why we buy

To understand what motivates each of us to buy and to learn how we might be able to change our buying patterns, we must look at our personalities, our values, our relationships with our families and our neighbourhoods, and our reaction to marketing efforts. Basically, we buy to satisfy our needs. While today the goods may be more sophisticated and varied, we still experience the same joy that our primitive ancestors received from a successful hunt. However, we are no longer content with satisfying our basic needs for food, clothing and shelter. Now we also buy to satisfy our needs for security, self-fulfillment, intellectual stimulation, belonging  and diversion. Personalities strongly influence our buying habits. There are significant differences among the personality types in people’s attitudes toward money. The most conservative spenders are introverts whose aims are more pragmatic than lofty, and who make decisions based more on intellect than emotion. Big spenders are extroverts and risk takers. They may buy impulsively or only after concentrated reasoning and comparison.

Resisting Marketing

We are constantly bombarded with marketing messages. Companies spend billions of dollars trying to persuade us to buy their products or to use their services. It is not surprising, with this much money involved, that a lot of sophisticated study has been applied to consumer behaviour and marketing techniques. The savvy consumer needs to be resistant to modern marketing ploys. Marketing is perception, and quality is a nebulous characteristic alive only in the eyes of the buyer. Companies strive to endow their brand names with an image of quality or status. Pinnacle brands such as Rolex, Armani and BMW are symbols, the possession of which often fulfills a fantasy of ultimate wealth begun in childhood. Premium brands such as Nike and Mercedes Benz hold higher status than brands such as Bata and Ford that are perceived as “middle-class.” However, there is often little relationship between perceived and true quality.

We should determine what qualities we are looking for in a product and evaluate those without regard to the brand label. Don’t ignore less known or so-called middle-class brands. Also, be honest with yourself. If you want a BMW because it is a costly status symbol, don’t say you bought it because of the engineering. Resist the pressures to acquire the symbols of success. It is much easier to purchase products associated with wealth and status than to achieve either. Spending time and money in the pursuit of looking superior often results in inferior economic achievements. Even small savings add up. We may be paying only 60 cents a can for our favourite soft drink, versus 40 cents for a less-known brand. However, if we drink two cans a day from 25 to 65 years of age, we are looking at an expense of nearly $3,000. For a family of five, with 10 products of equal savings, you could save $150,000 before investment.

Controlling Spending
Understanding the motivations, emotions, or disorders underlying spending behaviour is necessary in order to make a change.
Controlling our desire for more is not an easy task. Here are some suggestions:
* Focus on what really matters in your life
* Separate needs from wants
* When shopping, emphasize durability over novelty
* Don’t shop for entertainment. Avoid malls and other places where you are more likely to spend
* Throw away catalogs that come in the mail
* Spend less time with big spenders
* Spend more time in Church, Temples or Mosques
* Try to see the symbolism (hidden fantasy) in advertising
* Don’t buy on impulse. Make yourself wait for something you want
* Coordinate thrift with friends and coworkers. Get together to put spending limits on gifts, nights out together, or children’s sneakers

Allocating Our Resources

There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent planning one’s financial future. Those who accumulate wealth allocate much of their spare time to activities they hope will enhance their wealth, including studying about and planning investment strategies. For most, a successful strategy involves developing a family budget and savings plan and frequently monitoring your adherence to it. Tracking your spending and saving and your financial progress is a good way of enhancing your feeling of financial security and making the attainment of wealth and security more likely.

Are You Saving Appropriately?

The first step in the evaluation process is to analyse your current spending and saving habits. You can estimate how much you should be worth from your age and your annual income:

1. Multiply your age by your total taxable annual income - your pretax income from all sources except inheritances. (It should include investment income as well as earned income.) if your income varies considerably from one year to the next, average the past three to five years’ incomes.
2. Divide by 10

For example, if you are 40 years of age, your salary was $75,000 last year, and you earned $5,000 in dividends from your investments, $320,000 is your expected net worth (40 x 80,000 = 3,200,000; divided by 10 = $320,000). You should subtract any inherited wealth from your actual net worth before comparing with this figure. You are considered a wealth accumulator if your net worth is approximately double this figure, and an underaccumulator if your net worth is half of this amount. Another way to determine how you are doing is to calculate your annual savings rate by dividing your annual invested savings by your total income. You should save at least 15% of your income. You should also size up your debt load. Divide your debt into productive and nonproductive debt.

Productive debt is used to finance an investment. Education loans, business loans, and primary home mortgages can be considered investments rather than expenditures. Nonproductive debt is used to finance expendable or depreciating items, such as a vacation, car, boat, clothing, and jewelry. Most wealth accumulators incur little or no nonproductive debt. Usually they purchase these items only with money they have already accumulated. The total of your nonproductive debt should not amount to more than 25% of your annual income.