5 Ways to Add Friction to Reduce Overspending
Companies keep making it easier for you to make unintentional purchases.
There is an entire industry dedicated to reducing the friction between you noticing an item, and buying it. Just take a moment to consider for a moment the updates to the online shopping industry:
Catch
Klarna
Affirm
Sezzle
Apple Pay
Google Pay
Amazon Pay
Mobile Wallets
Many more
These businesses are all dedicated to reducing the existing friction between the consumer and the seller.
No more big price tags (when you pay in installments)
No more filling out your billing/shipping address
No more getting up to find your credit card
No need to check your account balance
Online shopping even got rid of the need to put on pants and go out into the world to buy something.
And credit cards got rid of the need to go to the bank and get actual money.
What this all adds up to, are significantly fewer moments for the consumer to stop and consider "Do I actually want to buy this?". With as few as two clicks (Amazon's "Buy Now" option) you can be the proud new owner of a pair of shoes you bought completely on impulse which you might not be able to afford.
So what do you do when you need to stay on top of your budget because you're prioritizing your long-term goals?
You make your own friction.
Here are 5 ways to add friction into your financial life to reduce your tendency to overspend:
1. Use Cash
The classic cash envelope system is a simple way to force yourself to think more about making a purchase prior to doing so.
It works like this:
Give yourself an allowance of "X" dollars per "X" period
Go to an ATM or bank and withdraw said amount of cash
Use only cash for your everyday, miscellaneous purchases
You'll be less likely to run through your money, because you'll actually see how much something is costing you (and what percentage that amount is to how much you have), and as you run out of dollar bills you'll be more inclined to eat in, or wait until next month to buy that shirt.
2. Use a Debit Card
Credit cards make it much easier to overspend and lose track of your finances.
One, because they have a limit which does not align with your limit, and
Two, there is a time lag between making a purchase and seeing the balance, to when you need to pay for that purchase with your own money.
So scrap the credit card and just use a debit card. If you run out of money in your checking account—well now you have to decide what to do.
Are you going to pull from savings?
Wait until more money shows up?
That is Friction.
3. Use a Dedicated Spending Account
Having a dedicated spending account for your miscellaneous and variable expenses can help you keep tabs on where your money is going.
Again, by giving yourself an allowance of how much is acceptable to spend in a certain time period, you naturally put a cap on what you can do.
The best way to do this is with an automatic transfer. Every month or 2 weeks you "pay yourself".
Set up the rest of your finances to run on their own too, and now all you need to monitor is this one account.
4. Use Automatic Savings Transfers
Another way to "pay yourself" first, is by having automatic savings transfers. If you take the money away from yourself before you can spend it, then you are good to go.
Again, you have to make an extra step of transferring money back to yourself if you run out. This isn't necessarily good or bad, but it creates another point of friction. You have to consciously decide to make an additional transfer.
5. Delay Impulse Purchases
Set a rule for yourself that whenever you decide you want to buy something you must wait 24+ hours before pulling the trigger.
This added time can help you realize if this is actually something you really want or not.
Are there places in your life you can add additional friction to help with better habits?
