Learn to Save by Taxing Yourself

Someone forwarded a link to a guide about how to buy nothing, which offers seventeen steps for resisting the urge to splurge. It’s a good list of techniques to reduce spending — leave the money at home, stick to a budget, buy quality — but what caught his eye is the last trick in the list: “Tax yourself. Every time you make a purchase over $10 (or $50, or whatever limit you choose), take 10% of the price and put it into your savings or your investments. This way you discourage yourself from buying something just because the item is “marked down” or “a bargain” while boosting your financial security every time you make a significant purchase.” I’ve mentioned this tip in passing before, but it’s worth highlighting. A self-imposed consumption “tax” would seem to have several advantages: It could encourage a person to seek better prices. If you know that every purchase is going to cost you 10% more, there’s incentive to shop around, particularly for expensive items. It may lead to greater mindfulness, greater awareness of spending habits. If I know that every purchase is going to cost me extra, I’ll probably slow down to ask myself, “Is this something I really need?” A self-tax would reduce impulse-shopping. Many people already save some portion (generally 10%) of their income. By implementing a self-tax, these folks would accelerate their savings rate. Because this technique only taxes larger purchases and not all of your income, it’s excellent for people who want to begin to save, but who cannot afford to do so in big chunks. This concept is still new to me. I haven’t tried it myself, and I’m not aware of any friends or acquaintances who have used the method. I may give it a shot in the future, though. Get Rich Slowly