Now this is exciting! The following is a special guest post by a blogger that I always enjoy reading, she goes by Paid Twice and her blog is titled I’ve Paid For This Twice Already… (RSS) Enjoy!
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Which sounds better to you - 12 payments of $20 or a single payment of $240? If you’re like most people, 12 payments of $20 is a lot easier for your brain to accept than shelling out $240 all at once. (I actually am of the opposite camp, because I have an odd brain, but we’ll address that later). If you want to stop spending money, and start saving money, use this psychological trick to your advantage!
Say you want to sign up for something and it is only a recurring expense of $30/month. Take that number, and calculate out the yearly cost. Did you really want to spend $360 for that every year? Now put your wallet away. Problem solved. Don’t just accept a payment plan at face value. Now, that amount might still sound small to you. Think about it in terms of a large purchase like a car. Too many of us are focused on just getting that payment under some magic number we can fit into the monthly budget. Well, take that magic number, and multiply it by the number of months you’ll be paying on that car. Things like 6 year loans are becoming more and more prevalent with auto loans. $300/month for 6 years is over $21,000 by the time it is paid off… did you realize you were paying that much for that used Chevy Metro? I didn’t think so.
On the other hand, are you having trouble saving money? Does it seem too overwhelming to save enough? Stop thinking about it in big numbers. How much money do you want to save? Let’s say your salary is $24,000 and you want to save 10% of that, or $2,400 a year. That sounds like a lot! Maybe it is easier to accept if you think about it as $200/month. If saving $200 a month sounds impossible, does it sound easier at $50/week? Is that still too much for your brain? Try looking at just $7/day. The side benefit to that is $7/day or $50/week actually end up being a little more than $2400 so you’ve saved more than your target. Bonus!
As I said in the beginning of the article, my brain is wired differently. One large cost seems more reasonable than month after month fitting things into my budget. So I generally flip this over. $900/year seems not too bad for my son’s preschool. But once I realized that it was $75/month, every month, and that was one of my largest “discretionary” budget items, well, I had a change of heart. It may still be worth the cost but I’ve looked at the expense much more critically since then. And I am not doing a large amount of saving right now because I am still eliminating some consumer debt, but I find it much more motivating to look at “I can pay off $13000 in this year” vs thinking about $1100/month. So if your brain works like mine, flip the scenarios in the first few paragraphs around. Save in the big picture and spend in the small picture instead of vice versa.
The take home piece of this is really to try and find the MOST shocking way to look at purchases and the LEAST shocking way to look at saving, and use those psychological tricks to your advantage . We’d all like to spend less and save more, and it is time to get your brain on board with your will. Good luck!
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4 responses so far ↓
My brain must be wired like yours, because I too would rather pay just once for something than have to pay every single month. (Unless its for something like a house or a car, then of course, you would pretty much have to pay it off monthly or bi-weekly)
Interesting - for my noodle, it is easier to digest a monthly payment of $30 for cable, rather than a lump sum of $360 for the year. Big lump sums make me think, “do I really need this?” Often I don’t and can remove it from my budget. Thanks paidtwice for a very thought provoking post.
I *almost* wrote on this very subject today. Now I know why I didn’t. You said it much better than I could have! Great post!
I’m trying to get into the habit of looking at total cost rather than monthly payment. I think that would help my overall budget a lot!
I like how you show two ways to do it. Because, depending on what kind of purchase I’m making I think it could be to my psychological advantage to use both. Big numbers scare me, but small ones sometimes do when seen on a per-day basis. I guess it depends if it’s something I use everyday like the internet (daily rate) or a car (big number).