Yahoo Finance Why These Forms of Payment Are Making You Overspend — and What To Do Instead
Frictionless payment methods, from ApplePay to Venmo to Zelle, have made paying for goods and services much more convenient and simple. However, there’s a downside to these forms of payment.
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“In today’s digital age, it’s easier than ever to make impulsive purchases and lose track of our spending,” according to David Schlossberg, an IRS-enrolled agent, a registered financial consultant and accredited investment fiduciary with Assured Concepts Group.
Part of the reason for this tendency to overspend, according to Jeff Mains, founder at Champion Leadership Group LLC, is that “the ease of use can diminish the psychological impact of parting with money, leading to more frequent and mindless spending.”
These and other experts explain what to watch for and how to be careful about overspending in general.
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Become Aware of the Mental Disconnect
Frictionless payments create a greater disconnect between the purchase and people’s available funds, according to Liran Eliner, CEO of Cache.
“Old studies have shown that credit cards increased spending because people didn’t immediately see the spent amount in their bank account and therefore didn’t internalize that they actually spent money,” Eliner said. “Frictionless payment methods extend this further, making it harder for people to actually internalize that one click of a button or one swipe of your phone actually means that you spent money.”
Additionally, new payment methods generally add an additional “bucket” of spending in people’s minds, Eliner said.
“We call this ‘mental accounting,’ which is essentially the concept that people create distinctions between their financial resources by categorizing things into different ‘mental accounts.’ Frictionless payment methods basically added a new mental account that didn’t exist before, causing people to feel like they have a new spending bucket that they can fill up, leading to overspending.”
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Track and Categorize Your Spending
Start by being mindful of your spending habits and understanding your financial limits, Schlossberg said.
“A growing strategy for many is to also leverage technology to track your spending,” he said. “Many of the banking and personal finance apps offer features that categorize expenses and provide insights into your habits. The job of regularly reviewing these helps identify areas where you tend to overspend.”
Go Old School
Also, you may need to simply consider not using a frictionless method unless it is the only option, Schlossberg said.
“Consider using old-school cash or debit cards,” he said. “This provides a clearer sense of your spending limits and forces you to think about the total you are spending. It becomes tangible.”
Delay Gratification
Perhaps the hardest tactic, Schlossberg said, is to practice delayed gratification.
“Before making any nonessential purchases, give yourself time to think it over,” he said. “Consider if the purchase aligns with your financial goals. Even a 30-second delay before purchasing gives you time to think through it.”
Allow Notifications
Also, bringing more awareness to spending can help. Make sure you’re keeping your payment notifications on, so you can always see how much you’ve spent today at a glance on the home screen, recommended Clay Cary, a trends analyst at Coupon Follow.
“Make sure you know what your daily budget is,” he said. “Then, before you go to bed, you can quickly check to make sure you’ve stayed within it.”
Impose a Spending Cap or Prepay
If you find yourself forgetting to do that, it’s time to get serious, Cary said.
“Apps like Venmo and Revolut will allow you to impose a spending cap on yourself,” he said, “and alert you when you’re getting closer to hitting it.”
It also can help to load only a small amount of money onto your digital card, Cary said. “I add a week’s budget at a time, as I find it easier to manage than thinking about the whole month.”
Set Financial Goals
Setting specific financial goals can create a framework for mindful spending, with each transaction evaluated against its contribution to these objectives, according to Mains. Whether that is saving toward some larger milestone or purchase or it is simply building an emergency fund, prioritizing goals will make it more likely that you’ll save instead of spend.
Cool Off
Another money strategy tip is building in some time to pause or cool off before a purchase.
“Establishing a ‘cooling-off’ period for non-essential purchases allows for more deliberate decision making,” Mains said, “which can reduce the likelihood of regrettable spending spurred by the immediacy of digital payments.”
Cultivate Financial Literacy
Additionally, Mains said, cultivating financial literacy and emphasizing the value of saving over spending can shift mindsets from immediate gratification to long-term financial health.
“This includes regular reviews of financial statements to identify and address patterns of overspending,” he said, “reinforcing the discipline required to resist the siren call of convenience spending.”
Set One Active Card
Another useful strategy is to set only one credit or debit card to be active in your phone or wallet at a time, according to Dan Kroytor, founder of TailoredPay, a merchant account provider.
“Ideally, choose a card that doesn’t have unlimited spending,” he said. “Changing your mindset from tapping to pay for everything to tapping to pay only for necessities or funds you would rather not use frivolously could help you curb your overspending habits.”
Find an Accountability Partner
If you’re really struggling to curb spending, find a friend or family member to partner up with for accountability about your frictionless payment purchases, according to David Bakke with DollarSanity.
“Talk about your habits and practices, and converse regularly about times when you made the right choice and times when you didn’t,” he said. “This way you’ll have an accountability partner and hopefully you will jointly be able to reduce overall spending when it comes to tapping your phone.”
Make Your Phone’s Wallpaper a Question
Another little trick if you think you really need help curbing this kind of overspending, Bakke suggested, is to change the wallpaper on your phone to show one simple question: ‘Do I really need this?’
“With that reminder on your home screen, I’m pretty certain you’ll be able to reduce purchases of this kind,” he said, “because, more often than not, contactless pay purchases are for things you don’t necessarily have to have.”
No matter how you go about curbing your spending, the more attention you bring to your methods of spending, as well as prioritizing your budget and savings, the better chance you have to not overspend.
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This article originally appeared on GOBankingRates.com: Why These Forms of Payment Are Making You Overspend — and What To Do Instead
