Vincent forwarded a link to a guide about how to buy nothing, which offers seventeen steps for resisting the urge to splurge. It’s a good list of techniques to reduce spending — leave the money at home, stick to a budget, buy quality — but what caught Vincent’s eye is the last trick in the list:
Tax yourself. Every time you make a purchase over $10 (or $50, or whatever limit you choose), take 10% of the price and put it into your savings or your investments. This way you discourage yourself from buying something just because the item is “marked down” or “a bargain” while boosting your financial security every time you make a significant purchase.
I’ve mentioned this tip in passing before, but it’s worth highlighting. A self-imposed consumption “tax” would seem to have several advantages:
- It could encourage a person to seek better prices. If you know that every purchase is going to cost you 10% more, there’s incentive to shop around, particularly for expensive items.
- It may lead to greater mindfulness, greater awareness of spending habits. If I know that every purchase is going to cost me extra, I’ll probably slow down to ask myself, “Is this something I really need?” A self-tax would reduce impulse-shopping.
- Many people already save some portion (generally 10%) of their income. By implementing a self-tax, these folks would accelerate their savings rate.
- Because this technique only taxes larger purchases and not all of your income, it’s excellent for people who want to begin to save, but who cannot afford to do so in big chunks.
This concept is still new to me. I haven’t tried it myself, and I’m not aware of any friends or acquaintances who have used the method. I may give it a shot in the future, though.
GRS is committed to helping our readers save and achieve your financial goals.Savings interest rates may be low, but that’s all the more reason to shop for the best rate.Find the highest savings interest rate from Ally Bank, Capital One 360, Everbank, and more.
This article is about Hints and Tips
Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.
Discover is a paid advertiser of this site. Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.
SEARCH FOR RECENT ARTICLES
Interesting concept, but I think it would take a lot of self-discipline to enforce. I’d never be able to stick with something like this unless I made it public somehow, even if only to my significant other. External accountability works wonders. If nobody knows but you, you can break your own promises with impunity!
loading....
I would have trouble with that one. It would be tough for me to keep track of how much I was supposed to save when it was time to hit the bank. I just recently started putting all of the one dollar bills that I end up with every night into a savings jar. It may not result in all that much money, but it is a nice easy start.
loading....
We bank with Bank of America, and they have a similar idea in a program called “Keep the Change” that we have loved using. Basically, it takes all of the purchases you make in a day, rounds up to the next dollar, and deposits the rounded up amount into your savings account. So, if I spend 22.40 on gas, it rounds the purchase up to 23.00 and BoA deposits that extra sixty cents into my savings account. The bank had a promotion where they matched all the money deposited into savings for three months, up to a certain amount. We got our matching funds from the bank last month, and it added up to 125.00! Just for allowing them to throw a few quarters into our savings account every day.
Anyway, I’m really pleased with the program and it’s added up nicely. We still do our standard deposits into savings every month, but this is a great way to save a little extra. I am pretty sure you can still sign up for it, but I’m not so sure about the promotional deal.. Either way, it’s really been wonderful for us, and works along the same lines as the self-taxation idea.
loading....
[...] How to Buy Nothing [WikiHow via Get Rich Slowly] [...]
loading....
I do something similar for things I purchase that some would consider “sinful.” An example is when I buy fast food. I know I shouldn’t, so I tax myself by taking 50% of the cost and putting it into savings.
loading....
I once tried paying myself first. But then I didn’t have enough money to pay all of my bills (a minimum wage income doesn’t go very far). After a few months, I started getting shutoff notices for the utility bills I wasn’t paying.
So I took all the money I had “paid myself” and used it to bring my utility bills current. Then I stopped trying to pay myself first.
loading....
I might try this, either on purchases over £50 (approx $80 at the moment) or on beer, which I probably consume too much of.
The drawback is remembering to do it. If I do the beer thing I might need to save the money in a jar for a bit and then deposit it – I use cash in my day to day life. For large purchases, I’d probably use credit/debit card anyway so then it would just be a phone call transferring the money into savings.
loading....
Or if you work on a forward, outlay type budget, just add 10% to your total expenses every month. That way you’ll have 10% left over at the end of the year you can round up and put away.
loading....
Saving money before investing money is not a good idea. Savings accounts are not investments, then rarely (if ever) beat the inflationary rate! The wrong place to put savings is into a bank account! Bank accounts are there for the purpose of temporarily holding and moving money between REAL investments.
I live by the rule, if you have any money in your bank account – you have to much money in your bank account. I actively seek out clearance and purchase for pennies on the dollar, then resell or gift the items. Generally, I earn somewhere around 250%APR or so on my money. Knowing my return on investment, I cannot let money linger in my bank, or pocket.
At my rate of interest, if you take a $2000 initial investment then over the course of five years, you’ll have well over $200,000. It would require lunacy to hold onto any money.
In case of emergency, I normally have around $300 a day in checks arriving at the house from rebate deals, and/or cash money from sales, and/or money waiting for the right deal in my bank account, or waiting for transfer to my prosper lending account in my money market account.
The trick is knowing what is an investment vs what is a liability, and buying accordingly. Greater than 90% of my purchases are investments. Necessary disposable items are viewed as liabilities since they costs without payback and should be approached with extreme caution when purchasing, these include food, gas, paper goods, media (with the wealth of information resources available today, all media is liabilities and disposable).
I have been viewing gas as a possible investment though. I may purchase a fully electric vehicle from ZAP, then sign up at freegashelp.com for the $200 payout a month plan and use that money to pay for the vehicle.
loading....
Sorry for the spelling and gramatical errors, I was trying to type fast.
loading....
[...] Tax yourself whenever you make an impulse purchase. Take 10% of the of what you paid and put it into savings. This action alone can make you more aware of your spending habits. (J Wynia combines the self-tax with a time delay — clever.) [...]
loading....