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Wednesday, July 23, 2014

The Inverse Law of Control

Posted by Tim Stobbs on April 4, 2012

There is a great irony out there when it comes to your spending or saving that arises around the amount of control you allocate towards something over a long period of time, the less likely you actually need to control that item.  The classic example of doing this is giving yourself ‘spending cash’ (which some people call ‘fun money’) on a monthly basis.

When most people start cleaning up their spending habits it often makes sense to put all those little transactions you do each day into a pool of cash which is finite over any given month.  After all, it you know you have a coffee spending habit nothing else shows you exactly what you have spent in a few weeks than an empty wallet.  It forces you to think about your spending and realize what you are doing rather than just mindlessly spending money.  So as a tactic, it generally works well as it is basically like training wheels for control your spending.  No wonder Gail puts people on cash budgets with jars.

The irony kicks in when people do this for several years.  After that point in time, the spending limits are so ingrained in their behaviour that you could likely scrap the entire cash based system without any significant changes to spending.  This particular affect also applies to saving, since if you have lived on a strict spending control for a while you likely have a set amount of savings.  For lack of a better term, I will call this the inverse law of control: the more you control your spending over the years, the less likely you actually need that level of control.

For example, I could stop taking out my spending cash, shove my Visa in my hand for a month and tell me I have an unlimited spending budget.  Guess what, I would suspect over a six month average my spending won’t change all that much.  The habit is so ingrained the idea of an unlimited amount of spending is meaningless to me.  I would actually find it difficult to spend my full salary in a year since I’m so used to saving the majority of it.

Of course the law cuts both ways, those that bleed money every month and don’t save usually have the least amount of controls on their spending.  So putting on training wheels of cash in jars is actually a good idea in the beginning, but in the end if people really have changed, they won’t need the system after a while.

So what controls do you use on your spending?  Have you ever tried taking them off?

Comments

10 Responses to “The Inverse Law of Control”
  1. Steve says:

    You’re bang on with this thought Tim.

    My wife and I don’t budget at all but we track every penny and are natural savers so I know what our approximate monthly expenditures are any given month without a budget and I can see our savings increase accordingly in our bank account.

    But we love watch Gail’s Till Debt Do Us Part and agree that a cash only jar system would work wonders on anyone with a spending problem.

  2. Marianne says:

    We don’t use cash but we do track all of our spending. I suspect that if we stopped paying attention our spending would not change much at all. In fact, I don’t really need to pay much attention to how much money is left in certain areas of the budget because our spending just stays the same all of the time. I do love Gail’s system and am a huge fan. I just prefer to reap the benefits of my points credit card and don’t like to keep cash on me.

  3. lorain says:

    I have a system that I have used for years. When the paycheck comes in (hubby’s that is, mine immediately goes into the “holiday account”) I withdrawn $300. $200 is for groceries and incidentals (for 2 weeks) adn I hand $100 to hubby for his spending. Then another $250 is moved into the “tax” account which is used to cover all insurances, taxes, and propery utilities (water, sewer, garbage). Once all the bills are paid I like to leave a float of about $300 in the account…everything else goes into savings–one of our online HISA until we decide what to do with it. The $300 float covers hubby’s gas (I use a commercial gas card but he drives a very used BMW that uses hightest) and whatever else comes up…if it is not used it will go into the savings account when the next paycheck comes in.
    We track all our bills and spending. It is a system that works for us and we are prepping for retirement..not as early as most of you but we will be 56 when we pull the plug.

  4. Sheryl says:

    A possibly amusing story, back when I was married, I would take $100 in cash every two weeks and split it with my husband as our “blow” money. I would take mine as 20′s and a ten, but I had to get his as a roll of toonies so it would last him. Whatever he had in his pocket for the day, he would spend, so by only having 2,4 or 6 dollars in his pocket, he made the $50 last the entire two weeks. After a few years of this, he was able to get paper money instead as he had learned how to control his spending.
    Now, I use cash as much as I can, and to help keep me on track I’ll put some in different parts of my wallet, so when I’ve spent $50 (or how ever much),I have to get the next bundle of notes out. I use this as a reminder of how much I’ve actually spent. ( I record everything I spend as well, but sometimes on big shopping days where I’ve gone to several stores, it’s good to have this reminder).

  5. deegee says:

    I almost never use my credit or debit cards, so I make two ATM cash withdrawals of $160 every month to cover my day-to-day expenses. Once in a while I need to make a third cash withdrawal in a month but as long as it is not every month that is fine. Most of the cash goes to buy food but some of it goes to my square dancing admission fees (I fance 2-3 times a week).

    I don’t sweat most of the the small stuff but I am mindful of some of the fast rising prices of some food items I buy all the time so I have been seeking out lower costing substitues or I wait for storable items to go on sale and load up. This gives me enough control over my day-o-day spending.

  6. For those professionals, who can incorporate their business, this if HUGE.

    For the owner of a “sole proprietor” business, all the profit is put in your account. The urge to expend, is too easy!!!

    If the individual, incorporates, then one pays oneself a salary, and some of the profit accumulates in the corporation. It is still your money, but psychologically, it is different. It is the company’s money. You do not give into impulse.

    This is one of the major advantages of incorporating a professional’s practise. It is purely behavioural, but very strong!!!

    May seem a little off topic, but same theme…

  7. Joe Joe says:

    All my line items that are for things that are yearly expenses (prop. tax , car ins. house ins. etc) come outta paycheck before I see the net and that amount is sent to savings account via allotment — what is left is used to pay for monthly expenses and as many as I can are put on Credit Card to get rewards (I do pay off CC EVERY Month and never carry balance) Rewards average about 40-50 a month. Wife and I both charge all groceries, and dining out on CC and only carry cash for small stuff like tips and giving for gifts/parties at work events. We are both pretty frugal so that helps our “system” work and not get outta control

  8. mycanuckbuck says:

    I think my problem is I don’t really have any controls in place. Which is why I need to keep reading blogs like this and started my own to hopefully develop some good habits. I enjoy your blog, which is why I’ve nominated you for a Sunshine Blog award: http://mycanuckbuck.com/2012/04/paying-it-forward-the-sunshine-blog-award/

  9. Sandy says:

    I sure hope the stick-to-it-still-it’s-habit thing works for calorie budgets too! I’m working on both spending and eating control. I’ll let you know in a few years if I’m rich and thin :)

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