What’s the difference between those who learn how to stop spending money and those who can’t seem to get their impulse spending under control?
In this article, we’ll talk about eight research-backed tips to spend less, stop impulse spending and make better overall financial decisions.
Tip #1: Never Say “Never,” Just Say “Not Right Now”
Mark Twain once wrote:
“To promise not to do a thing is the surest way in the world to make a body want to go and do that very thing.”
— Mark Twain in The Adventures of Tom Sawyer
That’s certainly true when it comes to money.
If you tell yourself never to spend money on a certain thing, chances are you’ll go and do exactly that. It doesn’t matter whether it’s clothes, expensive lattes or whatever; the fact is that permanent self-denial of the things we like feels bad and doesn’t work in the long run.
The book Willpower: Rediscovering the Greatest Human Strength lays out an alternative approach that you can use if you find yourself consistently spending too much money in certain categories:
“[…] Telling yourself ‘I can have this later’ operates in the mind a bit like having it now. It satisfies the craving to some degree — and can be even more effective.”
In other words, don’t tell yourself “never” — just tell yourself not right now.
This works because you’re giving yourself the permission to buy the item, but also the space to think about whether you actually want it. Often, the desire to make a purchase fades strongly over a relatively short period of time. That’s why marketers spend so much money trying to get you to buy immediately — they know the longer you wait, the less likely you are to pull the trigger.
So I recommend creating a “To Buy” list on your phone. Whenever you feel the urge to buy something, add it to your list. If you still want it at some point in the future — say, two weeks or a month out — go ahead and get it.
My experience with this technique suggests that it will significantly reduce your impulse spending.
Tip #2: Set Up a Discretionary Spending Account
Many people know they need to start living on a budget, whether that’s something like the 50/30/20 budget, Dave Ramsey’s recommended budgeting percentages or budgeting categories you create yourself.
But choosing from the many budgeting methods can be difficult, and we sometimes avoid getting started because we feel like having a budget means we have to give up certain things we love. And like we discussed in the last section, self-denial is a recipe for failure.
That’s why Dan Ariely, a professor of psychology and behavioral economics at Duke University, recommends setting up a discretionary spending account:
“When people tell us they have a hard time controlling their spending, we acknowledge that they could budget for everything, but we also tell them it’s likely to be so annoying that they’ll just give up.
— Dan Ariely, author of Dollars and Sense
Instead, we suggest they decide how much they want to spend on a broad category of ‘discretionary items’; the things that they can live without, like special brew coffee, fancy shoes, or a night of drinking. Take that amount, on a weekly basis, and put it on a prepaid debit card.
Now they have this category of discretionary spending with a new budget each Monday. The balance on the card will show how it’s being used and the opportunity costs within this general category will be more apparent and more immediate.”
Instead of budgeting every dollar that comes in and out of your life, a much simpler approach is to budget for discretionary expenses only. This allows you to spend guilt-free on discretionary items and also drastically cuts down on the time needed to manage your money.
This approach can also help prevent emotional spending, because it gives you hard and fast rule about how much you can actually spend.
Tip #3: Monitor Your Expenses Daily
Research shows that people who weigh themselves daily are more likely to accomplish their weight goal. Giving yourself constant feedback has also been shown to improve your finances.
The excellent book Willpower, which we referenced in Tip #1, looked at how people’s habits changed after tracking their finances using the popular budgeting app Mint.
“[…] The data — culled from two billion transactions of three billion anonymous users — showed some clear benefits of monitoring. For the great majority (80%) of people, the upward trajectory of their spending was tempered after they joined Mint and began monitoring their transactions.“
When you’re consistently spending too much money, tracking your expenses on a daily basis is helpful because it forces you to stay focused on how your spending affects your financial bottom line.
In other words, seeing your account balance decline as the result of impulse spending is a powerful motivator for cutting back.
With that in mind, a good way to stop spending and start saving is to:
- Set up a discretionary spending account (see Tip #2), where you’ve allocated a certain percentage of your budget to “wants.”
- For all your other expenses, track them daily through a free budgeting app.
Tip #4: Hide Money From Yourself
Jane Bryant Quinn, who has written classic personal finance books including How to Make Your Money Last and Making the Most of Your Money, wasn’t able to save money until she started hiding it from herself.
As she explains:
“To become a serious saver, start hiding money from yourself. It works every time — if you don’t see it, you won’t spend it. You won’t notice that it’s gone. Really, you won’t. I know, because hiding money started me on my first successful savings plan.”
— Jane Bryan Quinn in the Dayton Daily News
This doesn’t mean literally hiding money from yourself by having a friend or partner stash it away in a secret location. Rather, it means making sure it’s out of sight and thus out of mind.
This is an instance in which I really like the idea of reverse budgeting, where you pay your goals first and are then able to spend whatever is left over.
With reverse budgeting, money is first allocated to your goals and fixed expenses. From there, you’re able to spend freely on discretionary expenses with the remainder.
Tip #5: Make Your Finances Your #1 Priority
Setting goals is important in many areas of life, and that’s especially true when it comes to finances.
But not all goal-setting is equally effective.
Guess which of the two people below is more likely to achieve their goal:
- Person A, who is trying to lose 10 pounds and increase their savings rate to 10%.
- Person B, who is only trying to increase their savings rate to 10%.
Research shows that people who try to accomplish multiple goals at the same time are less likely to succeed than those who focus on a single goal.
This is counterintuitive, because we often think that changing many things at once will produce faster results.
How we actually get results is by changing one thing at a time, mastering that behavior so that it’s effortless, and then moving on to the next thing.
Of course, this doesn’t mean that cutting your spending has to stay your top priority forever. But if you’re struggling to get your spending on track, improving your financial situation will make your other goals easier to achieve.
Tip #6. Reduce the Amount of Advertising You See
If you’re the type to overspend just because there’s a good deal, an effective strategy is preventing yourself from seeing the deal in the first place.
While there’s still a lot we don’t control when it comes to advertising, there are a few things we can do to at least limit the amount of advertising that comes into our life.
This includes:
- Unsubscribing from promotional emails.
- Watching ad-free TV, even if that means paying a small fee.
- Using services like OptOutPrescreen.com and DMAchoice.org to eliminate junk mail.
- Limit your time on social media. Not only is it bloated with ads, but research shows that peer pressure generated by social media causes you to spend more.
Tip #7. Leverage Meal Planning
One of the fastest and most effective ways to save money is by focusing on food. While food obviously counts as a “need,” there’s often a lot of waste (both figuratively and literally) when it comes to food spending.
A good strategy to save money on groceries is to closely track what you spend on food, using the daily monitoring technique outlined in Tip #3.
Another strategy is to create a meal plan for the days ahead.
Meal planning doesn’t mean living on rice and beans. You can eat healthy on a budget. The goal is to find a balance of convenience, health and cost that works with your budgeting and lifestyle.
Tip #8: Avoid Lifestyle Creep
As we make more money, we tend to spend more money. In turn, we’re in no better financial circumstances than we were before. This all-too-often occurrence is known as lifestyle creep.
What makes things even more difficult is that once we commit to a certain luxury item, going back to a more generic brand is difficult.
Rewarding yourself for earning more isn’t bad. What’s important is that you’re aware of how much those rewards cost — and that you recognize they’ll often be recurring expenses.
One trick is to allow yourself to ramp up your spending by a certain percentage when your income increases — 50%, for example — while committing to saving the other 50% of that raise.
For example, if your income increases from $3,000 per month to $4,000, that gives you an extra $500 of discretionary spending and an extra $500 in savings.
How to Stop Spending Too Much Money: Final Thoughts
The combination of credit cards, online shopping and smartphones make sit easier than ever to buy something on impulse. This means it’s harder than ever not to spend, because temptation and instant gratification are everywhere.
But what matters most is that you have the financial responsibility to resist this temptation, and the tips above have been proven by research to help.
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