Tag Archives: commitment device

Cash as a commitment device

Cash as a  commitment deviceWhat is a Commitment Device?

Never heard of a commitment device?

commitment device is a choice that an individual makes in the present which restricts his own set of choices in the future, often as a means of controlling future impulsive behavior and limiting choices to those that reflect long-term goals.

Bestiary of Behavioral Economics

The most interesting example I heard was of a man who wanted to lose weight and so we took embarrassing pictures of himself and gave them to a friend who promised to publish them if he did not meet his weight loss goal.  Just having a budget it a way to control the actions of your future self.  It allows your logic to take control before you emotions get out control.

Cash as a Commitment Device

Cash can be a more serious method of keeping spending under control.  Unlike a credit card or even a debit card, cash holds a hard line on your spending.  Once the cash is gone you can’t spend any more of it.

We use an envelope system for certain parts of our budget that we don’t use automatic bill pay for.

  1. Groceries
  2. Household
  3. Personal Care
  4. Dining Out
  5. Kid’s Allowances

We use cash for each of these categories for some different reasons.  Groceries/Household/Dining out – to help to control spending.  Personal care/Allowances – Because money comes out of those at irregular intervals, but I don’t want to spend the money in other places by accident.

There are people who use cash for all of their budget, but for us that seems like a bit of overkill.  We have found that for these categories it works perfectly for us

Image by 401(K) 2012

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