Multiple studies have shown that when you swipe a card as opposed to physically giving away cash, you tend to spend more. This is nothing new. But have you ever considered how the tendency to spend electronically without really thinking about it could help your finances as opposed to harming them?
Spending money is emotional. The ease of shopping online feels good (especially if the barrier to entry is low with saved payment information online), but paying the credit card bill after a spending spree feels bad. In fact, seeing overly high prices can actually stimulate the pain processors of the brain. The key is to automate “painful” spending so it goes on in the background.
How do you accomplish this?
Streamline monthly auto-billpay. Most people know that online banking systems allow you to centralize your billpay. This is absolutely something you should do to avoid accidental late fees. But not everyone is aware that you can call companies and ask them to change your bill’s due date so that it coordinates with when you are paid each month. Paying off your bills once or twice a month makes it easier to see what is actually available to spend in your checking account.
Save for large annual or quarterly bills monthly. If you have larger bills that don’t occur on a monthly basis, you can still save for them monthly, adding to your cash reserves so that the money for those larger bills is there when you need it. One example is saving a small monthly amount for gifts throughout the year to make the holidays much less stressful. Another is using automatic payments to streamline alimony after a divorce. Alimony can be a difficult long-term expense, but making payments automatically to an “alimony account” separate from the rest of your financial life can make it easier emotionally.
This seems simple, and it is, but electronically automating to keep cash flow smoothly running in the background can improve your feelings about painful bills.
Automatically increase your 401(k) savings each year as income increases. You can direct your retirement plan to increase the percentage of your salary saved each year. Many people time their savings increase to correspond with annual raises or cost-of-living increases in pay. Because that extra money was not part of the regular monthly cash flow before the raise, automating the savings keeps it out of sight and out of mind, lessening the temptation to spend.
Don’t self-sabotage. Not every aspect of your financial life can be automated—there are still habits you need to cultivate for your greatest chance of success. The good news is that simply avoiding mistakes goes a long way toward staying on the right financial path. So don’t go to the grocery store when you’re hungry, and don’t use the mall or online shopping as emotional retail therapy. Keep your short-term spending in the wider context of long-term goals—which leads us to our final tip:
Use apps or software to track your goals. As opposed to spending or investing based on emotion, your long-term goals are where it is perfectly fine to let your emotions drive and motivate you. But without “stepping on the scales” every so often, you won’t know if your savings for college funds are on track, or if you need to make some changes to comfortably afford a trip abroad. From Excel spreadsheets to Mint, there is no right or wrong way to track your progress—as long as you commit to tracking progress on a regular basis.
Combine that self-discipline with the tips above, and you’re well on your way to making the right financial decisions…automatically!
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