A study published in the Journal of Marketing Research finds that people are more likely to feel guilty about finishing ten small bags of popcorn than one big tub of it – even if the quantity of popcorn in those ten bags is the same as the giant tub.
In order for people to be more aware of how much they spend, partitioning the money into smaller parts can encourage better self-restraint when it comes to spending.
Follow these steps to help guide you on how to set up these partitions you need in your finances:
1. Monthly financial commitments
This will make up your monthly loan commitments and recurring bills, such as car loan, house loan, phone, Internet, and other utility bills. If possible, set up a standing instruction with your bank to pay these bills automatically every month.
2. Emergency fund
A contingency or emergency fund is important for unfortunate instances, such as job loss, health problems, etc. The general rule of thumb for contingency fund is to save at least three months’ worth of income. Set aside money each month to ensure you have this fund ready as soon as possible.
3. Financial goals
Set a plan to achieve your financial goals. If you are planning to save to buy a house, be clear of how much you need to save and by when.
4. Other expenditures
Now that you have your monthly obligations and savings sorted, you’re free to use what’s left for your meals, groceries and entertainment. If you partition your remaining money into categories, such as transport (petrol, toll, parking, or bus fares), food, and entertainment, you can monitor how much you are spending in each category and where you can cut back to better manage your finances.
Surely, there’s an app for this.
Like many things in life, there’s an app for this. There are some great apps and sites that will help you manage and partition your finances like Toshl Finance.