Use Artificial Scarcity To Boost Your Personal Finances
Are you looking for a new way to boost savings and control your monthly spending? The answer might be to create artificial scarcity. But what is artificial scarcity, and how can you use it in your own home finances? Here are a few answers.
What is Artificial Scarcity?
In economic terms, artificial scarcity refers to a state wherein the resources and means to create something exist, but production of the item is held back by outside forces.
Most of the time, artificial scarcity is not considered a good thing for consumers. A toy manufacturer might create buzz for their hot toy by not quite producing enough units to meet demand, for instance. In real-life terms, a cooperative effort such as OPEC might limit the production of their goods (oil, in the case of OPEC) in order to raise demand and therefore value.
You can use this same principle to create a benefit in your personal finances. If you pretend that you earn less money than you really do, for example, you have created artificial scarcity of your money. As a result of believing there to be less money available, the theory says, you make better choices as the supply dwindles. It's a simple psychological trick you can use to better your finances.
How Can You Create Artificial Scarcity?
Listed below are three ways to create artificial scarcity in your own finances in order to improve your usage.
- Use Automatic Deposit. Automatic deposit and transfer systems available through your bank account can move money around without your involvement. You might automatically transfer a set amount of funds to a designated bank account as soon as your check is deposited. The remaining money is what you have to work with.
- Use a Holding Account. Consider having your paychecks directly deposited into a savings account rather than a checking account. Place a small amount of money into checking and use that for as long as possible. Only when necessary will you transfer money from the other account. The dwindling checking account balance can help reduce spending.
- Use Cash. Cash is the ultimate way to use scarcity in your personal finances. You would withdraw a set amount of spending cash from the bank and then use this until the next payday. While this is, in reality, not your only funds, counting greenbacks is a good way to see how scarce your funds are and encourage you to stretch them.
Clearly, the means by which you create financial scarcity depends on your personality and situation. But whatever you opt for, the trick works the same.
Where Should You Start?
Artificial scarcity methods generally begin with good utilization of your banking account. Get started today by talking with your local bank about your savings goals and which approach you want to take toward creating artificial scarcity in order to trick yourself into better financial well-being.