How to Slow your Spending with Cash

Although you may have a budgeting plan to try to help you manage your personal finances, you may still be struggling to control your spending. One common reason why many people struggle to measure and control spending is that they buy everything on a debit or credit card. Why should this make any difference?

The Psychology of Spending

When you buy something using a debit or credit card, you aren’t actually parting with anything on a physical level, you simply hand your card over or even place it in the reader yourself and the money is transferred from your bank or added to your credit card balance. With credit cards in particular, spending can be fuelled if you find yourself on a “Buy Now, Pay in 18 Months” promotion and are only thinking about enjoying your purchases now and not necessarily about how you will repay at the end of the promotional period.
Numerous sources, including the highly respected Psychology Today website, have published studies that seem to confirm that we find it easier to spend when we’re using a card versus actually handing over cold, hard cash.
In general, the overview such studies provide is as follows:

• Cash is real, tangible, and something we identify as being valuable. We feel the emotion of spending when using cash.
• Debit cards are less real, in that we know when we hand over our card the money will leave our bank account, but it often isn’t something we’ll consider until we check our bank balance later.
• Credit cards are deemed the ‘least real’ means of spending, as it isn’t our money. Yes, our credit balance will increase, but it can often feel as if we’re not spending anything at all.

In summary, the further away we as consumers move from using ‘real’ money, the less mindful we’re likely to be of how much we’re actually spending.

How to Use This When Budget Planning

You plan a budget for yourself each month but still overspend because you only use your cards. Could the solution really be as simple as going to the bank each month and taking out the cash? The answer is that it might well be.
Consider adopting this plan and see how it helps you to slow your spending with cash:

1. Complete a monthly or longer-term budget as you usually would.
2. Confirm how much money you need to cover anything that must be paid directly from your bank account, such as direct debits and other regular payments. Include in your budget r essentials such as food.
3. Deduct this and any amount you want to save from your total monthly incomings.
4. The figure you are left with represents your total disposable income for the month.
5. Withdraw this sum from the bank and have the cash whenever you want to buy something.

Additionally, it might be worth asking for the money from the bank in higher denominations, as the psychological effect of ‘breaking’ a larger note may help to control your spending. Notice the difference of feeling between having a $100 bill in your pocket and five $20 bills instead.

Why Using Cash Can Help

By using cash for the month, you will quickly get used to the feeling of ‘when it’s gone, it’s gone,’ and find yourself being much more mindful with what you spend things on. How you deal with your saved money at the end of each month is then up to you. You may choose to deduct what you have left from the money you will withdraw next month, or to put it in a separate savings account.
Using cash can help you to slow your spending and make your budgeting much more successful.



What you need to know

Constancy Wealth Management is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 AFSL 232706 and Australian Credit Licence 232706. This information does not take your circumstances into account, so read the relevant disclosure documents and consider what’s right for you. If you acquire an AMP product or service, AMP companies and/or their representatives will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Ask us for more details.

This post contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information