I have a tip, in the form of a proposed economizing strategy, for anyone between jobs, struggling to make ends meet, feeling anxious or guilty about out-of-control shopaholic spending, receptive to a budgeting challenge, or frugal and proud of it.
But I also have one serious concern: that if too many people take my advice, I could trigger a major recession—and not just nationally, perhaps even globally (which I will explain below).
My suggestion is “spending-free days”–a schedule of zero spending some days of the week, e.g., alternate days. I’ve been experimenting with it and find that it not only works amazingly well, but is actually very easy to stick to.
For example, like the Catholic church’s formerly meatless Fridays, zero-spending Mondays, Wednesdays and Fridays will reduce day-to-day expenditures by almost 50 %, whatever your current average daily expenditure amount is.
The idea is to set a fixed limit for the spend days, e.g., $20, $50 or even $10,000 (e.g., for those who are not working because they don’t have to). On alternate days, that set limit is reduced to zero. But, if you are forced by circumstance or even impulse to spend on two consecutive days, go ahead, but simply “debit” the next spending day by deducting the amount spent from that next authorized day’s upper limit, with a kind of ad hoc “gladly pay you Tuesday for a hamburger today” accounting tactic.
(Note: A strict alternate day schedule will require closely monitoring your calendar, since the odd number of days in a week will cause a continuous shift of the days to be identified as spending-free. Monday-Wednesday-Friday schedule will result in less than a 50% savings, but will be simpler to keep track of.)
Among the benefits of spending-free days are these:
- the rational reallocation of income:Alternate spending-free days on a reduced monthly budget fosters allocation of disposable income to non-discretionary, recurring, non-impulse essentials or otherwise higher priority liabilities,e.g., the mortgage, health insurance, or car insurance.
- a way to buy in bulk without going over budget: The idea is that if you were instead to have a daily budget half of what your spending-free days budget is, say, $25 per day, instead of the alternate day limit of $50, you might find yourself blowing through the lower amount with just two or three same-day bulk purchases, whereas the higher limit on the alternate-day plan, allows for the purchase of both the bulk items and other, non-bulk items with one-stop shopping.
- control over impulse buying: Because daily shopping invites impulsive spending, particularly as a form of “denial” of over-spending the previous day, inserting a break between shopping days can inhibit or reduce spontaneous spending.
- a buffer between spending binges: The enforced pause between spending days can slam the brakes on any spending binge, much as staying away from a casino on alternate days encourages reflection on and better control or limitation of a gambling addiction.
- family values and financial discipline: Having one’s kids get with the program will not only reduce monthly expenditures, but also teach them to respect limits, to accept pauses between bouts of otherwise wanton gimmie self-entitlement and greed, and to be less susceptible to advertising brainwashing that extols immediate gratification, e.g., the electronic good retailer The Source slogan, “I want that!” and Nike’s “Just do it!” By setting and imposing those limits and constraints on themselves, parents will serve as good role models for discipline and restraint.
- partial extinction or weakening of the spending habit: A kind of corollary to the discipline consideration, curtailed shopping, in the form of fewer “trials” (sessions), can weaken or even extinguish the spending habit—depending on how the habit is defined. If “extinction” requires no shopping or spending excursions at all, then the spending habit is only weakened under this program. On the other hand, it can be argued that to the extent that there is zero spending on specified days, the habit of spending on those days will be extinguished.
My own experience amply confirms this. Not only am I spending nothing on the designated days (having “borrowed” into them only twice by overspending on an authorized day and spending on an unauthorized day), I am also skipping authorized spending days as well—sometimes going three days without spending a dime or even feeling tempted to.
- constructive illusion of spending latitude: Suppose your monthly shopping expenditures amount to $600 and that you want to cut that in half, to $300—hence, reduce it from $20 daily to $20 alternate days. If you attempted to accomplish that by reducing your daily expenditure to $10, you would immediately experience the psychological and economic constraint and decrease of spending latitude as painful.
But, if you continue to spend $20 out-of-pocket on the authorized shopping days, you will enjoy the illusion of having the same spending latitude when you shop as you did before—but only when you are allowed to shop, not on the scheduled non-shopping, non-spending days.
The key is to feel as free as you would when shopping as you did before going on the program. It is to be hoped that on the non-spending days, rather than feeling constrained, you will experience it as a case of “out of site, out of mind” (yes, “site”, e.g., shopping mall or supermarket).
How to Not Trigger a Recession
The only danger in adopting the spending-free program is that too many people will do so. Elementary Keynesian economic theory and world history, e.g., of the Great Depression, warn of the unwanted, unintended consequences of decreased consumption, especially when it takes the form of increased savings that are merely hoarded (in a shoe box), rather than allocated to investment—either through the intermediation of banks or by direct investment by the asset holder.
In technical terms, this means a dramatic increase in the “marginal propensity to save” (the “MPS”), at the expense of the “marginal propensity to consume” (the “MPC”), This means a dramatic increase in the percentage of disposable income people save instead of spend. If I shop half as much,spending half as much per month as previously, that amounts to a 50% decrease in demand for goods and services, which, micro-economically, can be great for me—but not if everybody copies me.
Then, there can be big macro-economic trouble, analogous to what would happen if everybody became a doctor (e.g., we would all starve, because there would be no farmers to feed us). (If you look at the math of the “Keynesian multiplier”, you can calculate the exact impact of a 50 % reduction in consumer spending. It’s huge.)
Inventories would accumulate to unacceptable levels; hours and workforces would have to be be cut and sales incomes would collapse, triggering further cuts in spending. Massive unemployment would result. Result of my recommended thrift: recession and maybe depression, nationally or globally, depending on how widespread the adoption of my spending-free program.
But, I can fix this: All we have to do to prevent such an economic apocalypse is something very simple: On the day you adopt the spending-free days program, you persuade someone else to double his or her spending on alternate days, by an amount precisely equal to your new alternate-day limit.
This may require having at least one friend who is either better off financially than you, is more inclined to be a spendthrift, an angel investor or who is a philanthropist (since that friend could make alternate-day donations to charities and probably be able to claim them as tax deductions, while waiting for the donations to trickle down and spread to others as income, much of which to be spent on consumables.)
May I suggest the logical place to start? With your boss. Even if not a spendthrift, your boss will probably be able to afford what you are trying to save. Not only will your boss’s additional consumer expenditure on goods or services offset the macro-economic effects of your equivalent retrenchment, it may also make your spending cutback micro-economically unnecessary…
…If that money is spent on a raise for you.