Lean and Green: Why You Buy Less Using Cash

How can you spend less of your money? The “Secrets for Money“ for today are how to be “lean and green” and get the most from your money and your time.

I have given you the answers to avoid overspending in the following tips.

First, I want to explain a little bit about the psychological root of spending. It is important to use cash not a credit card when you shop and make purchases because studies show that people buying with credit cards tend to spend more than people who buy with cash.

Why? Because we buy less when we use cash since the area of your brain called the insular cortex (a region of your brain that registers negative emotions) has a more intense sensation during the process of you giving cash and having less in your wallet or purse.

This area of your brain that registers negative emotions becomes more active in this instance than when you pay for purchases with a credit card.  When you pay with a credit card—”plastic”—it is ’seen’ and ‘felt’ more abstractly as a ‘future’ event—therefore in layman’s terms you tend to spend much more with plastic.

According to an NPR broadcast “Why We Spend More Using Credit Versus Cash”: “When McDonald’s started allowing credit card purchases the average purchase went from $4.50 up to $7.00 that is a huge increase.”

If you are trying to spend less money, maybe it is too radical for you personally to cut-up your credit card, instead make sure to withdraw cash according to your spending plan (a.k.a. “Budget”).

Here are some more tips—always ask yourself these following questions —before you buy to help you avoid overspending when facing a potential purchase:

How many of my labor hours does this item truly cost me? (Cost me in my time (your life blood) and money) And remember, you cannot replace your time, so if you are trading your time for money, as most people do, then you are “spending” your time and money!

I recommend calculating what you are paid per hour.  Even if you are on “salary” whether someone pays you to do a job, or you work for yourself and have set-up a “salary” regardless, you can still calculate what you make for “income” per hour.

Always remember this amount of money per hour, and then when faced with a potential purchase, ask yourself “How many hours of my work will this item cost me?”  If you are paid $10. per hour, and want to buy a $30. item, that is three hours of your time! (And there is sales tax too…so that is even more of your time and money spent.)

Also, it is wise to remember that this number you have calculated is taxable income—of course you are even making less money per hour once you calculate taxes taken out of it.

A recent way I learned to calculate this in a finances class was that many Americans pay approximately 30¢ in taxes for every dollar they earn.

Ask yourself these questions as well:

Do I truly need this? (Or, is it simply a purchase I desire.) Is it an “impulse buy?”

Can I afford this?

What will buying this item cost me in the long term?

If I do need this can I find it for sale for less cost elsewhere? Or, Can I swap or barter for this item?

Can I buy this used for less and still have a quality item?

If you carry cash not a credit card, and ask these questions on a regular basis each time you step into a store or click your computer mouse to enter into a “virtual” internet store you will save more money so you too can be lean and green and get the most from your money and your time.

Copyright © 2009 by Mara Rogers of Secrets for Money http://www.SecretsForMoney.info

Photo Credit: This photograph “Too Much Credit” by Andres Rueda. For more of this Photographer’s work: http://www.flickr.com/photos/andresrueda/ and http://www.flickr.com/people/andresrueda/.

For more “Secrets” to making money, saving money, and managing your money go to the Archives at Secrets For Money http://www.SecretsForMoney.info/blog

Quotation source: NPR broadcast Morning Edition “Why We Spend More Using Credit Versus Cash” July 3, 2008.

This post is featured at The Carnival of Personal Finance at Green Panda Treehouse http://www.greenpandatreehouse.com/2009/03/carnival-of-personal-finance196-music-edition/