I haven’t been able to find it, but I’m almost certain that someone out there has invented a scientific theory for why we use more of something when it’s abundant, and less of it when it’s scarce. Either that, or I’m completely flawed in my perception of reality.
Think about it in your own home and see if any of these ring true:
- If there are four jugs of juice in the fridge, it seems like everyone’s drinking it. If there’s half of one, people start sipping. That goes for any other drink or food, too.
- When the toilet paper roll gets short, you get very careful about how each piece is used. How about the number of paper towels you use in wiping down your kitchen counter?
This is dangerous because we should be saving precisely when we have the most of something, and using those resources when we have the least. We’re doing it backwards.
What’s This Have to do With Money?
Probably a whole lot, since money is a resource like any other. If you “manage” your finances by the balance in your checking account, I bet you felt pretty good last time it was high and thought you could spend freely, right?
When the balance hit bottom, discretionary spending suddenly stopped and you tightened the belt until next paycheck. Sometimes, the money ran out because you forgot about a bill or two. Because you weren’t thinking about the bill when that balance was sky-high!
Two great strategies worked in our case to combat this effect. They each had their place in a stage in our life, so think about how you work and which would work better:
- Make your checking balance artificially low. No one’s forcing you to keep all your money in checking, even money that you’ll need in a week or two. Open a fixed rate cash ISA you won’t see every day and keep future funds there. When your balance is constantly hovering at $500 (or whatever level you feel threatened by), you’ll watch your spending a lot more carefully.
- Start using envelope budgeting. Budgeting with envelopes drives scarcity because your money is split into tens of little envelopes with specific purposes. Suddenly, you realize you have nothing left for gas, or a good chunk of money left over to save.
Have You Experienced This?
One way or another, I think we’ve all been burned by this effect. Care to share your story in the comments?
Photo by yomanimus