Revealed: A Simply Unique Technique to Stop Impulse Buying that Credit Card Companies Never Want You to Know

The PANEL Test

Because Money Matters The 8 Principles to Build Your Wealth
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My 16-year-old daughter has been using this PANEL test that I taught her every time she’s tempted to spend money. This test saves her money while helping her become responsible and sensible. You can use it too to help you make better choices and prevent impulsive purchases:

P = Positive

A = Affordable

N = Now

E = Essential

L = Long-term

Imagine you have a panel of personal advisors who would ask you these questions every single time you are about to make a purchase:

  • Does it have a POSITIVE value?
  • Can you AFFORD it?
  • Do you need it NOW?
  • Is it ESSENTIAL?
  • Does it provide LONG-TERM value?

Or the questions can be summarized as: Is this an essential purchase with long-term positive value that you need now and can afford?

Pay attention to the underlined words. You’d want to ensure that what you are about to buy is essential that satisfies your need, not want, and the timing is now and not later. If you can wait, you will have a chance to delay the purchase and put it through the PANEL test again.

The purchase has to bring positive value to your life for a long term, not just a temporary thrill. Value is not only determined by the price of the product or service, but also measured in terms of happiness, health and personal improvement. It could be about preventing or solving a problem too. Consider how this purchase will affect your overall financial situation.

Affordability means that you can pay for the purchase with your cash not already designated for something else. If you have to use your education fund to pay for a car, you can’t afford the purchase. You should also consider associated costs, time commitment, and lifestyle changes. Look beyond the price tag— many things have hidden or unexpected costs. My mother often points out that buying a new shirt may lead to buying a new pair of pants, a new pair of shoes to match, and so on. If your purchase requires maintenance, know what the expected cost is (including storage rental if needed), how much time and energy it requires and how it affects you and others. For example, if you were to get a pet, there will be ongoing costs and time needed to care for it. Will you have time left to enjoy the companionship and be able to provide the affection your pet needs?

Remember too, that the cost is much higher than the sticker price when you buy with credit and don’t pay in full on time. If you make a minimum payment of $60 per month on your credit card balance of $3,000 at 20% interest rate, it will take you over 9 years to pay it off and the total of all payments will be around $6,500. So a $3,000 home theater system or wedding dress actually costs $6,500! You can use this calculator that compares three different payment options to pay off your credit card balance. Also, as long as you are still paying for an item, it isn’t really yours.

If you live in a place where buying on credit is socially acceptable and encouraged, be sure your spending behaviour does not get you locked into a chain of debt misery.

Credit cards are useful if you know how to use them to your advantage and don’t treat them as your unlimited source of money. Credit cards provide security, convenience, and benefits. They are often the best (or only) payment option for certain transactions, such as car rental or vacation booking. If the card has no annual fee and you pay the balance in full within the grace period, you earn the free use of the money while building up your credit and you enjoy the benefits your card offers, such as reward points and cash back.

Credit card companies may also provide extra protection when something goes wrong with a product or service paid for with your credit card. For example, for a faulty product, you can file a claim directly with the credit card company when the supplier has gone out of business or has no money to reimburse you.

Debt trouble begins when a person underestimates his/her spending and overestimates his/her ability to pay back. It is the ease of whipping out a piece of plastic to exchange for something tangible that gets many people into heavy debts. Credit-card spending doesn’t feel like real money and only when the statement comes do we realize how quickly purchases add up. Many of us don’t account for the long-term costs of interest and fees despite plenty of information, advice and even legislation attempting to warn us. Do you know exactly how much you pay in a year for fees, interest and other charges for using your credit card? If you knew you’d end up paying an extra $200 for a $500 product, would you still want to buy it?

Credit companies are in the business to make money. From their side, the longer and higher debt you carry, the more money they will make. Credit companies thrive on minimum payments and they make it easy for you to see that on your statement. The simple rule is: Don’t use your credit card unless you have the cash to pay the balance when the statement is due.

It is often easier to buy than sell. Don’t buy something assuming you can sell it if you change your mind. Your brand new $20,000 car will lose at least $5,000 in value the minute you drive off the dealership’s driveway.

You can download the PANEL test card here. Print a copy, put it close to your credit cards, and use it as a good reminder every time you are about to make a purchase. 

The PANEL test has many possible combinations. If any of your answers is “No”, ask yourself the following self-reflecting questions to get insights into you and your spending habits. Be honest with yourself and talk to someone or seek help when you need it.

If the purchase has no POSITIVE value:

  • Why do I want it?
  • Am I being influenced by something or someone?
  • Is there something else I can do or get instead?
  • What could be the worst thing if I go through with this?

If you can’t AFFORD the purchase:

  • Have I considered other options?
  • Can I negotiate more effectively?
  • Am I living based on my standards?
  • Is this worth going into debt for?

If you don’t need the purchase NOW:

  • Am I being impulsive?
  • Am I feeling depressed?
  • Am I feeling pressured?
  • Am I feeling entitled?

If the purchase is not ESSENTIAL:

  • Am I wanting too much?
  • Am I trying to get validation or approval?
  • Am I trying to impress or please someone?
  • Am I competing with someone?

If the purchase does not provide LONG-TERM value:

  • Am I a trend chaser?
  • Am I after instant gratification?
  • Am I being impractical?
  • Am I being wasteful?

Even if you answer “Yes” to all the questions, think about whether it is a smart buy, for example, can you buy it cheaper at a different time or place? If the purchase you want to make fails the PANEL test, it is likely a fleeting desire and it is sensible for you to walk away from it, especially when the cost is high. If you are in doubt, it’s better not to buy unless it’s a rare item that can’t be easily purchased elsewhere. Ultimately, you are the decision maker on how to spend your money. The thought process does not completely stop you from making purchases you might later regret, but it helps you become more conscious of your spending habits, which will result in fewer slips. We all experience weak moments. Lifestyle changes come only with patience, tenacity, and practice.

If you have a family, share your dreams and plans with your loved ones so you all can work together towards them. Ask for help and encouragement from people you love. Tell them you’re trying to trim your spending and you want their suggestions and support.

This page is part of Because Money Matters: The 8 Principles to Build Your Wealth. It is available for purchase (in eBook and paperback formats) and includes downloadable free tools, checklists, and templates.

The other books in this series: Because Money Matters: How to Earn More Money as a Freelancer in a Gig Economy and Because Money Matters: How to Find and Get a Better Job are also available in eBook and paperback formats.

Because Money Matters How to Earn More Money as a Freelancer in a Gig Economy
Because Money Matters The 8 Principles to Build Your Wealth

© All rights reserved 2017 by V. V. Cam. This includes the right to reproduce any portion of this book in any form, except for the use of brief quotations in a book review or with written permission from the author.

Disclaimer: The general information provided in this book may not apply to your specific situation. The information is accurate as of the publication date and it is subject to change. All links to websites, companies and service providers are provided for your convenience only. Please consult individual websites for current information regarding their practice, policies and pricing, etc.

The author is neither an attorney nor an accountant. Please consult with the appropriate personnel or agencies in your country for advice on legal and taxation matters.

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