Despite the ongoing cost of living crisis, Retail Times has reported that in September, British retail sales beat forecasts and rose for the third consecutive month.
The 0.3% increase in sales was helped significantly by Apple’s launch of the iPhone 16, which consumers flocked to buy.
While this increase in sales may be good news for the economy, it could also demonstrate consumers’ “mindless” spending.
How many of those who bought the latest model of iPhone really needed it? While some may be able to afford this lavish upgrade, others could have spent the money without thinking of their overall financial stability.
Read on to find out how managing your mindless spending and investing some of your wealth instead could help you progress towards your financial goals.
A need to fit in and the rise of frictionless payments could lead to mindless spending
There might be many reasons why you feel tempted to spend on products and services you don’t need.
You might spend to make yourself feel better on a bad day. Or perhaps you grew up in a household where money was lacking, so you compensate by spending on lavish treats now that you have the freedom to do so.
What’s more, we are all hard-wired to do what it takes to “fit in”.
Historically, being part of the tribe was essential for survival. Yet, in today’s modern world of social media and constant digital connection, this need to fit in could result in overspending.
Indeed, constant exposure to images of friends, family, and celebrities living fabulous lives, may lead you to make unfavourable comparisons with your own life. So, you might buy products and services that you feel will bring you the same joy and prestige.
However, if you mindlessly increase your spending in line with your income – “lifestyle creep” – you could miss out on opportunities to maximise your savings and investments. In the long term, this might make it harder to build the lifestyle you’ve always dreamed of.
Unfortunately, rapid advances in technology have made mindless spending harder to resist. While “frictionless payments” – such as e-wallets, contactless cards, biometric payments, and mobile payment apps – offer added convenience, they have also removed many of the barriers to spending that might make you think twice.
According to UK Finance, one-third of UK adults now use mobile contactless payments, and in 2023, almost 38% of all payments made in the UK were contactless. Such financial technology has become a way of life, and it’s probably here to stay.
However, thinking before you spend could help you enjoy greater financial freedom both now and in the future.
Spending mindfully and investing some of your wealth could give you greater financial freedom
Learning how to manage your mindless spending could allow you to invest some of your disposable income instead. This could help you build wealth over the long term.
The HSBC UK investment calculator might help you understand the potential benefits of investing some of the money you might currently spend on non-essentials.
Imagine that you invest £200 each month over the next 10 years, with an initial investment of £800 – the approximate cost of the new iPhone.
The chart below shows that, assuming a “medium” level of risk, the value of your investment could reach between £23,600 and £36,600 by 2044, depending on market conditions. If you remain invested for a further 10 years, the value of your investment might reach up to £68,100.
Source: HSBC UK
As you can see, while returns can’t be guaranteed, your total investment of £2,800 over 10 years could help you to accumulate a healthy savings pot.
However, if you’re new to investing, it may seem complex and daunting. Research published by Lloyds Bank reveals that half of UK adults are scared away from investing, with 38% confused by the jargon used.
That’s where we come in. As Chartered, independent financial planners, we have years of experience supporting our clients to develop investment portfolios that meet their individual needs.
While investing carries some degree of risk, a financial planner can help you determine a level of risk you’re comfortable with and one that aligns with your financial goals.
It’s also worth considering how overspending and failing to invest in your future could potentially jeopardise your future financial security.
Instead, we can help you create an investment strategy that makes the most of any money you save by spending more mindfully.
3 ways to reduce your “mindless” spending
Spending on occasional treats and luxuries is an important part of life. However, spending with care could allow you to invest more and build the wealth you need to achieve your long-term goals.
So, here are three ways to reduce your mindless spending.
1. Identify your long-term financial goals
Having clear goals to work towards might help you think twice before spending.
If you know that by foregoing the new watch you have your eye on, you can grow your investments and take one step closer to buying your dream home, you may find it easier to say “no” to spending.
Setting meaningful financial goals that align with your broader life aspirations is the key to staying motivated.
2. Review your budget and identify areas of overspending
Writing down your monthly income and outgoings might highlight any areas of overspending.
By distinguishing your “needs” from your “wants”, and prioritising how to spend your money, you may be able to set aside some money each month to invest.
3. Work with a financial planner
If you’re apprehensive about investing or lack the knowledge to do so with confidence, you may benefit from working with a financial planner.
We can help you build a diversified portfolio, which we will continually review and adjust in line with your shifting goals and circumstances.
Get in touch
If you’re interested in reviewing your spending and creating an investment strategy that helps you progress towards your goals, we can help.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by Best Practice IFA Group 19/11/2024
