12 Strategies to Curb Overspending

We all have long-term financial goals that we want to achieve, such as saving up for retirement. However, daily temptations, such as having a fancy dinner at a restaurant, buying a new gadget, or going on a nice vacation, must be resisted frequently to achieve these goals.

Unfortunately, our brain’s reward system is geared in a way that often prefers immediately accessible short-term rewards over long-term goals without any immediate pleasure. Thus, self-control is needed to resist spending urges in everyday life.

Which psychological financial self-control strategies are actually effective?

In a new study, just published in the journal PLOS ONE, Davydenko and co-workers (2021) conducted a meta-analysis of financial self-control strategies in the academic literature to find out which psychological financial control strategies are effective.

A meta-analysis is a statistical analysis that integrates the results of many different scientific studies. It has the advantage of having a larger sample size, increasing statistical power, and rendering the analysis less likely to be affected by characteristics of individual studies. The scientists included 15 different articles with a total of 29 studies that tested 12 different financial self-control strategies in their meta-analysis. Across all 29 studies, data from 12,316 volunteers were included.

The 12 financial control strategies identified in the analysis were:

1. Using a retirement savings projection plan
2. Planning purchases with a shopping list
3. Considering why you are pursuing the goal
4. Paying with cash as opposed to cards
5. Tracking weekly saving deposits
6. Using a savings account with no early withdrawals
7. Keeping budgets for shopping trips
8. Anticipating future regret over purchases
9. Setting specific saving goals
10. Keeping cash in bills in general
11. Keeping cash specifically in large denomination bills
12. Making money hard to access

The good news is: Across all studies, financial control strategies significantly helped volunteers curb spending or increase saving. Thus, psychological financial control strategies do work well in general!

The scientists further analyzed the data to find out whether proactive financial control strategies (strategies that focused on what people can do to control spending before they encounter a tempting situation) or reactive financial control strategies (strategies that focused on what people can do during a tempting situation) were more successful. However, the analysis revealed that both types of strategies were equally effective. Taken together, which financial self-control strategies one uses to reduce overspending doesn't matter that much, as long as it is used continuously.

Which financial self-control strategies are promoted online?

In a second analysis, they investigated which financial self-control strategies are promoted online by analyzing the content of websites focusing on financial self-control. The scientists were able to identify 104 websites that included 1,950 suggestions for how to reduce spending or increase savings.

These were the top 10 financial self-control strategies that were promoted online:

1. Savvy shopping, such as only buying items on sale, or avoiding brand name items
2. Avoid tempting places, people, and activities, such as restaurants, smoking, malls, or online browsing
3. Avoid spending temptations by doing it yourself, such as make your own lunch instead of going to a restaurant
4. Make a plan, such as a shopping list for grocery shopping
5. Used automatized deductions from a paycheck
6. Create a budget
7. Track accounts and spending or saving behavior
8. Make money hard to access, for example by freezing credit cards
9. Set or think about your financial goals such as your retirement or college fund
10. Think about if you need or want it

Interestingly, the overlap between the strategies promoted online and those that were proven effective by the first analysis in this study was 55.4 percent. Thus, there is some useful advice on websites promoting financial self-control strategy, but it only partly overlaps with what the academic literature has proven to be effective.

Which financial self-control strategies do people use in real life?

In the third and last part of the study, the scientists asked 1,000 Canadian and American volunteers about their financial self-control strategies to investigate to what extent the strategies tested in the academic literature or presented on websites overlap with what people are actually doing in real life. Eight hundred and thirty of the 1000 volunteers described at least one strategy they were using. Overall, 20 different strategies were identified.

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These were the top 10 financial self-control strategies that were used by the volunteers:

1. Create a budget
2. Think about if you need or want it
3. Make money hard to access, for example by freezing credit cards
4. Avoid spending temptations by doing it yourself, such as make your own lunch instead of going to a restaurant
5. Savvy shopping, such as only buying items on sale, or avoiding brand name items
6. Save before spending, for example, save 50 percent of a paycheck
7. Set or think about your financial goals such as your retirement or college fund
8. Track accounts and spending or saving behavior
9. Think about or imagine your future self
10. Wait before making the purchase

Overall, the strategies used by real people in everyday life overlapped about 50 percent with those that were proven effective by the first analysis in this study. The overlap with strategies promoted online was 95 percent. This may suggest (to no surprise) that people base their decisions on which financial self-control strategy to use more on online advice than the academic literature. Better communication of scientific results to websites that promote financial self-control could help people to optimize their strategies.

Take-Away Message

Failures in financial self-control can have severe consequences, making these strategies an important tool for long-term happiness and success in life. Fortunately, psychological strategies to reduce overspending and start saving are effective. Interestingly, the specific strategy does not really matter that much. This suggests that a generally mindful approach to everyday financial decisions that included one or more of the strategies discussed above is a great way to curb overspending.