Hit reset on your spending

Do you have the feeling that your spending has gone awry? One way to determine whether you’re on track with your financials is to try a simple experiment. For a week, limit yourself to just the basics — cut out expenses like eating out or going to the movies — and see whether you can reset your level of spending expectations. Treat it like a game or a temporary experiment and you may find you become accustomed to the changes sooner than you think.

You can then extend that experiment to two weeks, or even a full month, to really gather the data on your basic spending habits. You may also realize you have more money in your account, which can be applied to savings or a retirement strategy. That’s an important step, since financial professionals traditionally recommend that people save 15 to 20 percent of their gross income. When you decide to add your extra expenses back in, you’ll have both a better grasp on your spending patterns and more appreciation for where your money goes.

Riding the adaptation phenomenon

This experience is based on a psychological phenomenon known as “adaptation.”¹ This means that when something happens — positive or negative — you soon get used to it and return to feeling like your “old self.” For instance, if you get a raise, you’ll initially enjoy the extra room to spend but will soon become accustomed to your new budget and accept it as the new normal. The other side of the coin is that we adjust to disappointments in the same way. Luckily, resetting your expectations may not be as difficult as you thought. Plus, if saving more is important to you then you really want to make this a long-term habit.

Assessing needs versus wants

The key ingredient in resetting your spending habits is identifying what the basics are and what things you can do without. It’s a matter of pinpointing wants versus needs. What you need or want may not be the same as everyone else, so you’ll need to do some soul-searching to determine what you can do without. You can continue to fine-tune your budget to suit your own situation and help you modify your saving habits.

Navigating obstacles and reaping the benefits

During your spending reset, be prepared to encounter some obstacles — and unexpected benefits. If you’re accustomed to eating out several times per week, it can be hard to change your habits, but you may find that by cooking more at home you get the added benefit of eating healthier meals on top of saving money. If you cut down on shopping, you might miss your retail therapy, but you may come to appreciate the clothes you already own even more. Whatever your “thing” is, you can experiment and assess the results on your saving habits.

Temporarily cutting back your spending to the necessities can be a useful way to assess where you’re overspending, while gaining a few extra dollars along the way that can be applied to any number of things, including savings and retirement. And thanks to the phenomenon of adaptation, you’re likely to discover that it isn’t that hard to modify your spending habits and get used to your new regime. After your experiment, you can slowly and thoughtfully add back the things you really miss as you grow into a more aware and resourceful spender.