How to Stop Wasting Money: 4 Tips from Economists

Use the tipping points, budget correctly, and set a shopping limit.

Everyone knows to save money, but few succeed. And it’s not about problems with motivation and will. The amount of funds set aside is highly dependent on external incentives. Here’s how to wrap them up to your advantage.

1. Plan your budget for a week, not a month

In 2017, economist de la Rosa conducted a study Using Mental Models to Manage Food Stamps efficiently among people receiving food subsidies. The participants were divided into two groups: one was shown the benefit for a month and the other for a week. It turned out that the latter is better at planning expenses. Although the amount of the subsidy did not change, they had enough money for a longer period.

Read also: How to Save on Food.

A simple change of context helped people. Usually, food benefits are calculated once a month. A false sense of security arises: there seems to be a lot of money. Because of this, it is straightforward to misspend them, and by the end of the month, limit yourself in everything.

We are all subject to this thinking error on payday. To avoid this, try dividing your monthly income by weeks. It’s easier to plan your expenses this way.

2. Cut back on small but regular spending

Researchers at Common Cents Labs conducted several surveys to find out what spending people most often regret. In the first place, was common Cents Lab Unveils Millennial Financial Regret Spending Report meals outside the home. Coffee and on-the-go snacks in a month add up to a decent amount that could be put off or spent on something more important.

You may not drink coffee at all, but you probably also have expenses that you regret. Define them. Then change something in your environment to make those purchases more difficult. For example, remove your bank card details from those sites where you spend extra. If you can place an order in the application without a card, delete it from your phone.

You can also set a limit for yourself. For example, take a taxi only five times a month and visit two or three films, no more.

3. Involve in saving your future self

We usually perceive ourselves in the present and ourselves in the future as two different people. Moreover, we have more optimistic forecasts about our future version. We believe that she will begin to play sports and save for retirement, but we don’t have to worry about now. But you in the future are all the same, and you need to postpone it now.

The researchers concluded how Pre-commitment Leads to Better Tax-time Savings is easier if we decide in advance. They interviewed two groups of people, some before they received the tax deduction and others after. Everyone was asked what percentage of the amount they are willing to postpone. In both cases, the participants made commitments that could not be waived. They knew that the promised amount would go to their savings account.

How to Stop Wasting Money: 4 Tips from Economists
Image source: Reproduction/Internet

It turned out that those who are just expecting a deduction are willing to set aside about 27% of the total. And those who have already received money – only 17%. Quite a big difference. The point is that the first group responded by thinking about a future version of themselves. Naturally, it seemed to them that someday later, they would be more responsible and more economical.

Use this principle to your advantage. Decide how much you will save, not after you receive your paycheck, but in advance. For example, set a percentage in a banking application that will be automatically transferred to your savings account. And treat it like a commitment that cannot be waived. Because your future largely depends on this.

4. Make financial decisions at tipping points

Researchers have proven their benefits by conducting an experiment using Age Milestones to Motivate Behavior with advertising. They posted two banner ads on social media for a website that helps seniors rent and rent homes. Both targeted people aged 64 but took a slightly different approach.

One read: “The years do not standstill. Are you ready to retire? It’s easier if you share your home with someone. ” And on the other: “You are now 64, soon to be 65. Are you ready to retire? It’s easier if you share your home with someone. ” The second banner was clicked twice as often, and the number of people registered on the site also increased.

Also read: How to Save on Gasoline and Car Maintenance.

The fact is that he focuses on the turning point in life – retirement and the changes associated with it. In psychology, this is called the “blank slate” effect. At the beginning of the year, on Monday or a birthday, motivation usually increases. We want to act. Use this effect to meet your financial goals.

Create an event on your calendar the day after your birthday. Choose the goal that is most important at the moment. For example, open a retirement deposit or pay off loan debt. Reminding you of this goal at the “tipping point” will help you get started.

Adapted and translated by Wiki Avenue Staff

Sources: Life hacker