Stuart Vyse is Professor of Psychology at Connecticut College, in New London. In his new book, Going Broke: Why Americans Can’t Hold On To Their Money, he offers a unique psychological perspective on the financial behavior of the many Americans today who find they cannot make ends meet, illuminating the causes of our wildly self-destructive spending habits. In the article below he offers some quick tips to manage your finances. Hear a podcast with Vyse here.
Ways to save more:
1. Use your tax rebate to pay down debt or create or add to a savings account.
2. Use your tax refund to pay down a credit card or create or add to a savings account. If you aren’t getting an income tax refund this year, increase your level of withholding so that you will get one next year. This is an
excellent way to save painlessly, before you even see the money.
3. Set up a monthly savings plan by automatic withdrawal from your “bill-paying account” (see below).
Ways to spend less:
4. Separate out your non-disposable income. With your employer’s help, have part of your pay automatically deposited into a separate “bill-paying” checking account that is dedicated to paying regular bills (rent/mortgage, car payments, insurance, etc.). These bills, as well as regular savings deposits, can be automatically withdrawn from the account. The remaining income is automatically deposited into your disposable income checking account, for which you have an ATM card and checks. It is much easier to budget month to month when you have a better sense of exactly how much you can spend.
5. Try “just-in-time shopping.” If you sometimes buy all the materials for a household or leisure-time project but never get around to completing it, try to resist the temptation to buy these items until you know you will be able to tackle the project very soon: the next day or in the very near future. If food often goes bad in the refrigerator, the just-in-time approach can work for food shopping, too.
7. Kill your television. TV is the source of much advertising and a powerful conduit for the manufacture of our desire for stuff. Rent DVDs instead.
8. Avoid spending as a leisure-time activity. Reject the mall, the casino, and other high-priced forms of entertainment in favor of dinners at home with friends, reading, exercise, and other low-cost, healthy activities.
9. Carry less cash. Large wads of cash slip through your fingers more easily than smaller ones, and the self-imposed cost and inconvenience of additional trips to the ATM may force you to budget.
10. Build in delays. When you find yourself poised to make a purchase—in a store, online, in response to a catalog advertisement—ask your self, “Do I really need this right now?” Make yourself wait a day or two before purchasing. If, after delaying your purchase a reasonable period of time, you still want the item, then go ahead. But avoid quick decisions and allow time for your wiser self to weigh in.
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Good tips…the only thing I don’t understand is increasing your withholding to ensure a refund. Since the government doesn’t pay interest on the money which you are effectively giving them to “hold” for you, there are many ways you could be getting your savings to work more for you. You can set up before-tax, before-you-see-it-and-spend-it contributions to a 401k, or even use direct deposit to put a set-upon amount into a savings account every pay period.
Also, for point number 9, it probably varies according to how prepared one (generally) is, but carrying less cash can be a contributing factor to using more third-party ATMs, which hit you with fees.
Number 8 is very true, especially when spending money simply to impress others. Doing this only causes people to buy things they can’t afford.
[…] spending habits. In the excerpt below Vyse looks at the psychology of credit limits. Check out the tips he provided us with this morning or his […]