You can have personal finance articles such as this one delivered directly to your email, automatically - Receive regular updates via email.



Alternatively, you can receive updates via your favorite RSS Reader - Alternatively, you can receive updates via your favorite RSS Reader - Receive regular updates via RSS Reader

Memorial Day Weekend is almost over. Are you satisfied with however much money you spent for it?

$4 gas prices have significantly affected people’s spending habits in a way that hitting the $3 mark didn’t, Marketwatch says. There are articles all over describing how people have been trying to save money on Memorial Day weekend–though not always by canceling plans. “You can’t make financial decisions based on happiness,” said a man whose family used their economic stimulus refund to fund their family gathering (but decided not to buy steak for it).

Money may not buy happiness per se, but it can buy some things that will make you happy–a plane ticket to see your family, or food for a birthday party, or that painting you’ve been wanting for your bedroom. And, of course, money also supplies the necessities of life–food, clothes, medication–without which we find it harder to be happy.

The problem comes in defining and obeying the line between discretionary spending (luxuries) and autonomous spending (necessities)–particularly if you are used to a certain level of discretionary spending and are finding yourself required to reduce it. Many Americans are these days, between rising food and gas costs and concerns about employment. (However, the Bureau of Labor Statistics recently stated that while retail and manufacturing jobs are decreasing, healthcare and technical jobs are increasing.)

I’m having that problem in my own household; my husband lost his job and since he’s a teacher, he won’t have another until fall, so we’ve been temporarily reduced to living on my income. It’s been hard to remember that we can’t afford to go out to eat, or to get that cookbook I have my eye on. We can in the fall, but I’m not used to having to wait. In fact, having a privilege removed is called positive punishment in cognitive psychology–a positive aspect of your life is taken away. (Negative punishment means something negative has been added. Conversely, positive reinforcement means something positive has been added; negative reinforcement means something negative is removed.) Even though I haven’t done anything to deserve it, I feel punished–and that’s perfectly normal. But it’s not useful for my financial situation.

The key for me, and for other people in similar situations, is to try not to feel injured, because injury suggests a need to return to the previous state, and for someone with a reduced income that’s exactly the wrong response. Instead, we need to be active in making the new state, as much as possible, our new “normal” state.

That’s easy to say, but harder to do, of course. It takes work to build new behaviors, and sometimes what we need are shortcuts. What can you do if you’re having problems with that line between luxuries and necessities? Here are some ideas:

List all your expenses–not just monthly bills, but everything you spend money on: oil changes, salon visits, Girl Scout cookie orders, weekly bar tabs. Decide what you don’t truly need to spend money on.

Draw up a budget. If you find it useful, keep a running sum of what you spend each month in each category.

Tack that list–or a summary of your income and your discretionary income–up on a wall where it’s easy to see if you’re tempted to make a purchase you know you shouldn’t.

Maintain two bank accounts: one for necessities, one for luxuries. When your paycheck comes, put money into necessities first and never use it for anything else. (For extra boundary-building, open them in different banks so that it’s not easy to transfer money from one to the other.)

Withdraw your discretionary income in cash, and only pay for “fun” in cash.

Work on ways to increase your income or effective income: grow a garden, pick up a paper route, sell handcrafted items, have a garage sale.

Be Sociable, Share!



















Tags: discretionary spending, Psychology, spending habits