Making a long term change to your spending requires the development of new habits. It may be opting for the generic brand, making your coffee at home or planning out your purchases ahead of time. Its not an easy transition, it requires some self awareness (some purchases are on auto-pilot) and self control. The best habit building technique I have found is to use Money Mind Tricks that shame your spending into submission.
Money Mind Tricks to Cut Spending
1. How many hours of work does it take to buy this item
This one is commonly used, but really motivating for the Freedom Seekers that despise going to work. Strip out your taxes and insurance premiums and figure out how many hours it takes you to pay for your next purchase. It could be the wake up call you are looking for to curb spending.
When I was working construction, I always chuckled at the guy who “wasn’t making enough” but spent $20 at the gas station everyday on cigarettes, energy drinks, pop and snacks. He basically smoked and drank away 2 hours of his paycheck WHILE working. Its tough to get by if for every 8 hours you put in the Government takes 2 and you throw 2 away.
2. What would compound interest do to item cost in 5, 10, 20 years
Shouldn’t be a secret that I like playing with compound interest projections after my “would you be a millionaire” post earlier this week. But thinking about purchases in terms of what they could do for you in the future is a great way to deter spending.
Mrs AE hates this game, especially while baby shopping. “Do you think she would rather have a stuffed animal that she wont remember now or a few hundred dollars when she is 18?” Does not go over well, but its true 🙂
The rule of 72 falls into this same bucket. Divide 72 by your expected return rate and it tells you how long it takes your money to double.
72/7 (Interest or return rate) = Money doubling every 10.28 Years
Especially powerful on large purchases – think of that $20,000 car turning into 40 or 60K…….. or more if you are taking a loan out to buy it.
3. How much extra are you Paying for Convenience
Whats $4 for a pop and bag of chips a few times a week? Only adds up to a few hundred dollars a year (twice a week would be $416). Not only is this a waste of money on poor health choices, its a terrible financial decision based on price per ounce.
$1.89 for a 20oz pop is 9.45 cents/oz.
If you buy a 24 pack of 12 oz cans (288 oz) for $5 (common on sale price around us) it is only 1.7 cents/oz. Kinda crazy that convenience cost 5.5X for something as simple as a Coke. Pretty sure it tastes the same regardless of where you buy it.
If you know you are going to drink more than 1, buy the case at the grocery store…… In other words, look at your spending habits and start planning the purchases ahead of time. Don’t feed the convenience money wasting monster!
4. Using percentages to care more about small amounts
I wrote about my all-out-love for percentages a few months back, but I want to highlight how they make me care about small amounts of money. Whether its raises, purchases or investment gains – looking at everything with a percentage lens has altered our behavior.
$1.70 vs $1.20 does not seem very significant, most people don’t bat an eye at paying the extra 40 cents and go about their day. However, when I look at that difference, I see a 42% price difference. If you make that decision 10-15 times in a single shopping trip, it makes an impact.
On the flip side, you are making someone really happy by boosting there product margins and bonus checks (looking at you name brand price markup marketer).
Another way to look at the savings percentage on smaller purchases: if you would take it as a 0% risk investment gain, then why wouldn’t you take it as savings.
Are there any Money Mind Tricks you like to play to save more or spend less?
Some products that can help you:
Personal Capital: Personal Capital has a ton of great Free features, you can track your spending, net worth and even analyze your portfolio. It has top-notch security and I am able to connect all of my accounts. Saves a ton of time!
Sofi – I saved a ton of money using SoFI for a Student Loan Refinance. They are great to work with, the process was super easy (compared to my previous refi) and I got a great rate. If you have student loans be sure to check them out.