How to control spending urges

Picture this. You go to an end-of-season sale with an intention of buying only products that are necessary for your household.

However, you end up with a cartload of items that will hardly be useful to you but were available at 75 per cent discount! If this happens to you often, you are like most of us – we typically lack self-control when it comes to our spending decisions. So, can we moderate our urge to spend?

Segregate spending

It turns out that behavioural psychology and neuroscience can help us address our problem. Research in neuroscience has shown that our brain triggers adverse reactions when we part with our cash. Besides, studies in behavioural psychology have also shown that we tend to spend more when we use a credit card than when we use cash. So, how can we apply these studies to moderate our spending?

First, segregate your expenses into discretionary and non-discretionary categories. Non-discretionary expenses are those that are essential to run your household, such as your monthly groceries and utility bills.

On the other hand, discretionary expenses are those expenses that you can avoid, if you have to, such as fine dining and going to the movies. Next, create an expenditure-pay rule. That is, use your credit card for non-discretionary expenses and use a debit card for discretionary expenses. You are unlikely to splurge on your non-discretionary expenses and using a credit card will not make you spend more on your grocery purchases. And remember, you also get to accumulate points for buying products that you will anyway have to consume!

Why use debit card for discretionary expenses? You are more likely to stop yourself from splurging when you part with cash than when you use your credit card. But carrying cash, especially to meet discretionary expenses, is not practical.

The closest to cash is your debit card. You can, of course, also opt for an alternative – a secured credit card. To do this, you have to make a deposit with a credit-card issuing bank. Suppose you deposit Rs 50,000. Your bank will allow you to use your credit card for an amount not exceeding Rs 50,000. Thus, you cannot splurge beyond a stipulated amount.

Develop the habit

You may wonder how practical the expenditure-pay rule is. We should develop the habit to counteract our spending problem. So, if you can make yourself apply the expenditure-pay rule on 50 or more occasions, you will develop a habit. But do not let the habit dull the adverse reactions in your brain when you are using your debit card. For that will defeat the purpose of this exercise – to help you moderate your spending!

(The author is the founder of Navera Consulting. Feedback may be sent to >knowledge@thehindu.co.in )

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