Freeze Your Assets: How to Force Yourself to Stop Overspending

Making a budget is easy. You know what's even easier? Completely ignoring that budget.

On Mint.com, I can set up a budget for various categories of spending, and then get an alert every month I exceed those limits. So if I've got a $150 monthly budget for dining out at restaurants, I'll get an email yelling at me if I spend too much going out to eat. But it's one of about 30 emails I get every day -- not including all my work emails -- so it's easy to miss. And even if I do see the email, there's only so much it will do to impact my spending habits.

Maybe I was genuinely unaware of how much I'd gone out to eat that much. And maybe I'll have enough willpower that seeing the email will make me stop going out to eat for the rest of the month. But here's the more likely scenario: I'll feel a brief pang of guilt, but I won't say no the next time someone invites me out to dinner.

For people who don't have the willpower to stick to a strict budget, more radical means are necessary.

Sequester Your Spending

One classic example of forcibly stopping yourself from spending is to literally freeze your credit card in a giant block of ice. You're not going so far as to cut up your credit card, and it's still possible to get at it if you really need to buy something. But putting that obstacle in your way slows you down enough that you can rethink your impulse buy while you wait for the ice to melt in the sink.

There are a few problems with this method. One is that the rise of online shopping means that it's not as crucial to have the physical card with you to make purchases; even if you can't see the card number through the ice, it's likely that e-commerce sites like Amazon have your payment information stored. And if it's a card you've had for a long time, you might have memorized the number.

"If you're one of these people who's good with numbers, call your credit card company and get a new card," suggests personal finance expert Jean Chatzky, who runs the "Money School" series of budgeting and finances workshops.

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But there are other methods of sequestering your money that don't involve giant blocks of ice. One is the envelope system of budgeting: At the beginning of the month, you decide how much money you're going to spend on gas, groceries, restaurants and every other aspect of your life. Then you take that amount of cash and stick it in labeled envelopes. Once the "restaurant" envelope is empty, you simply can't go to any more restaurants. Finding that you're out of restaurant cash halfway through the month is a lot more effective than getting an automated email.

"You can't mess it up," says Jacob Wade of iHeartBudgets. "When it's gone, it's gone."

As Wade acknowledges, there's one big obstacle here: You have to have enough cash on hand at the beginning of the month to be able budget your whole month in advance. If you're living paycheck-to-paycheck, you won't be able to have an entire month's worth of discretionary spending in envelopes at the beginning of the month.

Still, you can find ways to do in on a smaller scale. Wade says he used to control his grocery spending by deciding his budget in advance and then putting it on a grocery store gift card.

"It kept us accountable," he says. "You get balance at the end of the receipt, so as we would make grocery store runs it was easy to see when we couldn't spend extra."

Save First, Ask Questions Later

Whether you're using envelopes, gift cards or prepaid debit cards, a system of this sort helps reduce the overspending impulse by visualizing exactly how much you're spending over the course of the month. But it still doesn't exactly stop you from spending. If you really want to go out to eat, and your restaurant envelope is empty, you can always put it on a credit card.

With that in mind, Jean Chatzky has a foolproof approach for making sure your spending doesn't get out of control: You just decide in advance how much you want to save every month, and make sure that amount goes into untouchable savings accounts. Your discretionary spending is limited to the money that's left over, so you're forced to stick to your budgets.

"Save first and do it automatically," she says. "If you've made that one good decision -- whether you put it in a 401(k), or an IRA, or a savings account, or some other place where you're unlikely to touch it -- then no matter what you spend your remaining money on, you're saving."

Fortunately, there are plenty of ways to do this. Your employer may allow you to withhold a portion of your paycheck to go into a 401(k). If you've got direct deposit set up, you may be able to split it across two accounts -- say, 90% into checking and 10% into savings. And your online savings account should allow you to automatically transfer a pre-determined amount of money into a savings account on a regular basis.

However you do it, though, you should endeavor to put it in an account where it's difficult to access.

"Trying to put some barricades around your money," she says. "You're only as strong as your willpower, but you're less likely to get at the money if there are penalties."

With retirement accounts, those barricades do indeed come in the form of penalties for early withdrawal. But if you want to put your savings in a more conventional saving account -- say, because you're trying to build an emergency fund -- then Chatzky recommends using an online-only bank so that accessing your savings isn't as easy as stopping by an ATM. Just like putting your credit card in a block of ice, it's all about putting enough barriers between you and your money to slow you down and make you think twice about spending.

"These are all mind games we play with ourselves, and you have to figure out what makes sense to you," says Chatzky. "I know people [on diets] who don't eat after 8 p.m. Why? Who cares, if it works."

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.

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