The Psychology of Spending: 4 Practical Ways to Save More Money

Published on September 26, 2013 by Lauren
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    Lauren Greutman Recovering Spender

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    There's a lot of psychology that goes into selling, and avoiding overspending requires an understanding of that psychology to reverse-engineer our way out of it. Each of these money-saving methods stop selling tactics in their tracks.

    1. Start and Maintain a Budget

    Maybe you've started a budget before and fell off the wagon. I know in the beginning, budgeting didn't come easy for me. I remeber even asking myself, “Why is a budget necessary?” But let me assure you, it's worth the effort.

    Budgeting isn't about merely checking your accounts to make sure you have enough money to spend. It's about proactively managing your finances. It's about telling your dollars what to do well before you make your purchases. If you've found yourself asking, “How do I budget my money in the first place?” Don't worry. I've got you covered. 🙂

    It's much easier to make commitments to spending limits when a new gadget or snack cracker isn't staring you in the face. That's why you should create your budget before the month begins or before you go spending your next paycheck.

    Have kids? Teach them about your budget when they're begging you for the latest trinket or candy in the checkout aisle: “Yes Timmy, you can have that because it's in our budget.” “No Timmy, that's just not in our budget right now.”

    The psychological spending boundaries you give yourself will result in a paradoxical feeling of freedom. Try it!

    2. Convert Prices to Working Hours

    Too often, we only compare prices with that of the competition. There's another important consideration:

    Ask yourself, “If I were to buy this $30 item, how many working hours will that cost me?”

    Let's suppose you're making $20 per hour. After taxes and insurance, let's assume (for the sake of our example) that your net pay is $15 per hour. That means it'll cost you two working hours to buy that $30 item.

    Right about that time, you start thinking about your job. Visions of scrubbing toilets or dealing with difficult people flood your mind. You think, “I wouldn't work two hours to get that!”

    Boom. You just saved yourself some money.

    3. Identify Wants Posing as Needs

    Imagine your broke friend going through your house and budget. What would they point out as wants posing as needs? When you're looking to save money, you don't need the latest smartphone. How about that heavily-financed car? Just say no! There are plenty of older, safe cars you can drive.

    How do we justify all these wants? A number of ways:

    1. By telling ourselves that we deserve more than we have.
    2. We compare what we have to what others have.
    3. By making impulsive purchases and falling in the trap of spontaneous spending. Why not wait a few days to see if we have a real reason for that purchase?

    Don't let your wants become what you consider to be your needs. There are real physiological needs and safety needs. While Maslow's hierarchy of needs describes a few more (love/belonging, esteem, and self-actualization), physiological and safety needs are the most urgent.

    Think objectively about your needs versus wants. You can even ask a friend or your spouse to help you for more certainty that you're on the right track.

    4. Spend Cash

    There's certainly nothing wrong with using a debit card. After all, we live in a electronic world. However, using cash can be a great psychological aid to help you spend less money.

    Think about it. When you swipe your card, you feel as if you're giving some abstract numbers to a merchant – but nothing physical. But what about when you hand over cold, hard cash? Well, that's a different story.

    There's something about the feel of money leaving your hand that produces some psychological pain. That pain is negative reinforcement. Through negative reinforcement, you can learn to spend less.

    Knowing how to start a cash budget and using the envelope system, will give you profound results. Once you spend all the cash from an envelope, that's it for the pay period (or month, depending on how you're budgeting). You'll find yourself hanging onto more of your money.

    You don't have to spend cash in every budgeting category for this to work. Simply try spending cash for categories where you tend to overspend. Give it a whirl and see how it works for you!

    Final Thoughts

    By changing the way you make and think about purchases, you can save more money than you ever thought possible.

    Remember, you are in control of your spending. Nobody forces you to make purchases. Take the extra time necessary to carefully consider the goods and services you're thinking about buying. Do they represent a good value? How would these purchases enrich your life? What are the benefits?

    Be sure to brainstorm some other practical ways to save money and make more appropriate purchases.

    Finally, when you do make an educated spending choice, feel confident it is the right choice – no regrets!

    When you purchase goods or services, what questions do you ask yourself? What practical steps are you going to take to make smarter purchase decisions?

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