A Tactic From The High Seas: How To Combat Overspending
I’ve always been fascinated by naval history, particularly accounts of naval warfare. As an adolescent, I remember binge-reading virtually every naval military history book contained in the archives of our local library.
I found the exploits of Sir Francis Drake, a 16th-century English privateer commissioned to harass Spanish merchant trade in the Caribbean, particularly fascinating.
By this point in the Master Your Money series, you should have a rock-solid money management system and budget in place. But like a poorly-tied sailor’s knot, all the work you’ve done thus far can be easily undone by overspending.
Today we’re turning back the clock to the Age of Sail to review a naval practice you can adopt to combat overspending and keep your budget out of the briny deep.
Table of Contents
- 1 The Dangers Of Overspending
- 2 A Two-Masted Problem
- 3 The Need To Combat Overspending
- 4 Naval Rations In The Age Of Sail
- 5 Bringing Out The Big Guns: Putting Your Discretionary Spending On Rations
- 6 Doling Out Budget Rations With The Envelope System
- 7 Prevent Overspending From Fouling Your Financial Freedom
- 8 Cure Your Overspending For Good
The Dangers Of Overspending
The Age of Sail played a critical role in the Age of Discovery, which is loosely defined as spanning the mid-16th to mid-19th centuries. During this period, uncharted reefs posed a serious risk to ships navigating previously unexplored waters.
In a similar fashion, overspending poses a serious danger to even the best-laid financial plans. After all, what good is a perfectly balanced budget on paper if it doesn’t reflect reality? Allotting $100/month in your budget for eating out does you no good at all if you end up charging twice that to your credit card.
Short of simple willpower, there’s nothing in your budget preventing you from scuppering your savings goals by overspending. And if you do, it’s not just a savings goal completion date that will get delayed, but your ideal future lifestyle as well.
A Two-Masted Problem
Like twin masts on a sailing vessel, there are two primary causes of overspending. And if your budget is getting blown up like cannon fodder, you need to be able to identify why. So let’s break out the looking glass to get a better view of both types below.
Impulsive Spending – A Matter Of Willpower
According to Wikipedia, impulsive spending consists of illogical, unplanned purchases decided on in the moment and based on a desire for self-gratification.
How many times have you made a trip to the store and came home with an unplanned item or two? Or added an item Amazon “Recommended For You” to your online shopping cart?
We’ve all been there. A 2016 CreditCards.com survey found that 86% of Americans engage in impulsive spending. And 54% of poll participants reported making impulsive purchases on items that cost $100 or more.
As if impulsive spending weren’t already common enough, retailers go out of their way to encourage it. The checkout aisle is the most damning evidence of their strategy to overwhelm your willpower. It’s no mere coincidence that common (and cheap) vices like candy, chewing gum, breath mints, snacks, and discount DVD’s are conveniently located in or near the check-out.
Compulsive Spending – a.k.a. “Retail Therapy”
If not held in check, impulsive spending can morph into compulsive spending, otherwise known as “retail therapy”. The difference between the two lies in their motivation. Impulsive spending is spontaneous and happens in the moment, while compulsive spending is deliberate and is used as a coping mechanism.
Compulsive spending is sometimes referred to as Compulsive Buying Disorder (CBD). According to Psychology Today, tell-tale symptoms can include the following:
- Spending a significant portion of income on discretionary purchases
- Accruing a large amount of consumer debt
- Continually spending despite resolutions to stop
- Feeling agitated or excited while shopping
- Using shopping or “retail therapy” to cope with stress
Studies estimate that 6-7% of all adults suffer from compulsive spending, a number that translates to about 20 million Americans.
Catherine from Sisters for FI recently wrote about the unique challenge compulsive spending presents young women, in particular. In the section of her article titled “Girls Shop, Boys Build“, Cat shared her own experience:
“In my 20s, shopping was not only a past time, but the cure all for everything. Heartbreak? Shop. Bored at work? Shop. Need a pick-me-up post workday Friday? Shop. By the time I was in my mid-20’s, I had a walk-in closet full of stuff that I never wore. I did my monthly Target runs spending a few hundred dollars on things I didn’t need. For a period of time, I personally was just doing what I knew to do since high school or middle school. That was to spend money.”
Societal norms handicap young women today by teaching them that spending is a band-aid for a bad day or an emotional moment. This places an unnecessary hurdle between them and financial freedom.
The Need To Combat Overspending
Both impulsive and compulsive spending can pose serious risks to your budget and financial well-being. Whether you find yourself occasionally coming home with a few items that were not on your shopping list, or frequently relying on “retail therapy” to get you through those rough days/weeks/months/years, you need a plan for how to combat overspending and protect your ability to reach the finer things in life.
When used in verb form, “combat” is a pretty powerful word. Take a look at the below definition:
Combat (verb) – take action to reduce, destroy, or prevent (something undesirable).
Follow that up with a look at its synonyms:
Attack, Battle, Block, Check, Counter, Curb, Halt, Impede, Prevent, Resist, Thwart, Withstand.
Like sailor’s grog, that’s some pretty strong stuff. And there’s a reason I’ve settled on this word choice. Because unless your hobbies happen to include fire-walking, there’s a good chance your willpower alone isn’t enough to stave off the danger overspending poses to your financial freedom.
Sure, you may have a few nominal protections in place. By now you’ve created a balanced budget, configured Mint over-budget alerts, read up on the importance of delayed gratification, and converted your vision of financial freedom into actionable savings goals.
These give you some basic armament. But this isn’t enough to take on the man o’ war of overspending head-on. To do that, you need to adopt a naval practice which dates back to the Age of Sail.
The concept of rations is not a new one. In fact, use of the term dates all the way back to the mid-1500’s. According to Dictionary.com, its official definition is as follows:
Ration (noun) – A fixed amount of provisions or food; especially for soldiers or sailors or civilians during a shortage; an allotted amount.
During the Age of Sail, this concept of rations became universally adopted on naval vessels. Setting a daily allotment of food and drink per sailor aboard enabled captains to calculate how many days at sea they were capable of. This was strictly necessary for successful trans-Atlantic voyages with long stretches between resupply points.
A sailor’s daily ration in the British Royal Navy dating back to the 1660’s included a pound of hardtack biscuits (affectionately known as “molar breakers” and “worm castles”) and a gallon(!) of rum or beer. Salted pork, peas, and oatmeal made up the remainder of the menu.
By the early 1800’s, Her Majesty’s sailors enjoyed occasional delicacies such as “Soused Hog’s Face” (yes, the face of a pig) and “Figgy Duff”, a type of pudding.
Significant precautions were taken to ensure that each man received his daily ration, no more and no less. For example, ship cooks were required to whistle while preparing treats such as puddings, to ensure they didn’t pilfer any of the ingredients such as raisins or currants.
Stealing food was punished severely, as it endangered a ship’s ability to reach its planned destination. The reported punishment was to nail the offender’s hand to the mast and lop it off.
Bringing Out The Big Guns: Putting Your Discretionary Spending On Rations
Deviating from the rationed amount of vittals in the Age of Sail could cause a ship’s journey to founder. Similarly, exceeding your budgeted amount of discretionary spending on a monthly basis can threaten your ability to reach your destination of financial freedom.
You’ve already allocated a specific monthly amount to each discretionary spending category in your budget. Now you just need a reliable enforcement mechanism to prevent overspending. Thankfully, there’s a solution that stops short of lopping off your own hand or keel-hauling your significant other, but is just as effective.
When it comes to impulsive spending, retailers have stacked the deck against you. To win out, you’ll need to bring out the big guns. This involves eliminating your ability to overspend.
Blockade Your Overspending By Paying With Cash
In the Age of Sail, meal rations were enforced by tasking a neutral third party with serving up portions for sailors. You can enforce your discretionary spending rations by eliminating your ability to overindulge in a similar way.
In this case, your neutral third party involves leaving the plastic at home – both your debit and credit cards. Numerous studies have found that carrying and using only cash to pay for expenses is an effective solution for overspending. Just how effective? Consider the following:
- Psychology Today reports that paying with cash rather than a credit or debit card results in a higher “pain of payment” feeling. In one study, this translated to a 17% reduction in discretionary spending. Additionally, studies have shown that the pain of paying with cash can curb impulsive responses and reduce the purchase of unhealthy food or other types of vices.
- The New York Times featured an article about a case study involving a sports ticket auction which compared bid amounts from credit card buyers against buyers paying with cash. The study found that bidders were willing to pay twice as much for the same ticket if paying by credit card than if paying by cash. You can find the ensuing research paper, titled “Always Leave Home Without It: A Further Investigation On The Credit-Card Effect On Willingness To Pay“, here.
- NerdWallet has reported that the average McDonald’s order paid for by credit card totals $7.00, while that paid for with cash is just $4.50, a decrease of 36%.
Doling Out Budget Rations With The Envelope System
I’ve already shared how Mrs. FFP and I reconciled our wildly different spending habits as newlyweds. Around the same time, we implemented the envelope system for some select budget categories.
We did so partly for transparency and accountability purposes when it came to our personal spending money. But the main motivation was our discovery that Mrs. FFP had a very low “pain of payment” when paying with plastic, and tended to overspend our weekly grocery budget.
In an effort to combat overspending, we set up a literal envelope system for the following four budget categories:
- Entertainment (Eating out, movies, activities, events)
- Mr. FFP’s Personal Spending Money
- Mrs. FFP’s Personal Spending Money
At the start of each month, we’d pull our budgeted spending for these categories out of the bank and put it in each envelope. All spending was to come strictly from the cash in these envelopes, no exceptions. This took some major adjusting at first for Mrs. FFP.
But Why Is The Rum Gone?!
After we implemented the envelope system, things tended to get tight towards the end of the month, particularly with groceries.
I still remember eating like kings the first two or three weeks of a given month. But that last week we’d be rummaging through the cupboards to find sustenance due to overspending the first few weeks. It was definitely a “feast or famine” roller-coaster for those first few months.
Mrs. FFP’s personal spending money usually went fairly quickly each month as well. I can recall some humorous moments where she was rifling through envelopes at the end of the month and bemoaning her limited or non-existent funds.
The memory always brings to mind Jack Sparrow desperately asking “But why is the rum gone?!” in Pirates of the Caribbean after Elizabeth Swan burned the contents of the rum storage pit on the abandoned island.
These painful experiences early on instilled in us a proper appreciation for the consequences of overspending. I’ve yet to find a more powerful tactic to defend against impulsive grocery purchases than remembering the last time you overspent and as a result had nothing but saltine crackers to eat for the last week of the month!
How We Customized Our Envelope System
Our original envelope system has worked well enough that we still use it today, eight years later. Amounts for the various categories have changed and we’ve tweaked the process slightly, but the principle remains the same.
Don’t like the idea of holding cash at home, not earning any interest? I didn’t either. And because my tendency for saving meant my monthly allotment of personal spending money simply accrued from month to month, I built a sizable stash rather quickly.
Since paying with plastic is no less painful than paying with cash for me, I ended up signing up for a prepaid debt card linked to a savings account and using this to hold my personal stash. This adjustment offered the following benefits:
- Eliminated the security risk of holding my sizable stash at home
- Meant I was no longer missing out on interest
- Gave me the convenience of using plastic
You should customize the way in which you combat overspending to whatever works for your unique situation and personality. You can use a traditional envelope system for trouble categories, utilize a hybrid approach if you and your spouse or significant other have differing save / spend tendencies, or you may not even need an envelope system at all.
Keep a weather eye on your discretionary spending over time in relation to your budget. You’ll quickly identify problem areas where you tend to overspend. Consider implementing the envelope system or a variant of it to combat this overspending.
Prevent Overspending From Fouling Your Financial Freedom
In the Age of Sail, wooden ship hulls beneath the water line would quickly become fouled by weeds, barnacles, and algae. This had strategic consequences in naval engagements when opposing fleets would attempt to outrace one another to obtain the weather gauge.
In the 18th century, the British Royal Navy implemented copper sheathing beneath the water line on their navy vessels, which served to prevent the build-up of marine life on the ships. This innovation increased ship speed by one-sixth, prolonged hull life by one-half, and gave Royal Navy ships a stark competitive advantage in naval engagements.
Overspending can slow your savings goal progress and your journey to financial freedom just like algae and marine weeds slowed ship speed prior to the invention of copper sheathing. If you or your spouse tend to overspend, protect your timeline for obtaining financial freedom by putting your discretionary spending on rations. Doing so will cure your overspending faster than a fruit basket could cure a sailor with scurvy.
Extra Bonus – Want to experience first-hand a large part of naval life during the Age of Sail? Try out this recipe for making hardtack, a staple of every British sailor’s diet on the high seas.
Cure Your Overspending For Good
For those of you who have been following the Master Your Money series from the beginning, below are the next steps on your journey to financial freedom:
- Evaluate your own spending habits and have an honest discussion with your significant other (if you have one) about theirs as well. Identify and make a list of budget categories which you tend to overspend.
- Share your finances with someone else and like the way that we reconciled our wildly different spending habits? Discuss and consider whether your personal spending money should be allotted in cash to avoid spats about overspending from joint accounts.
- Challenge yourself to put your grocery shopping, eating out, and mad money budgets on cash rations for one month. Afterward, evaluate whether this was easy or difficult. If it was difficult, continue until it becomes easy.
- Determine your personal “pain threshold” for using cash in relation to credit. If the two are similar, consider using a prepaid debit card rather than cash.
- Monitor your budget categories over time using Mint Budgets and Mint Trends. Identify any categories that you frequently overspend and put yourself on cash rations for that category until the problem is resolved.
- If specific categories feel too tight after curing any and all overspending, you may need to increase your budgeted spending in these categories and re-balance your budget.
The prepaid debt card linked to a savings account may have eliminated the security risk of having cash at home, but it increases the likelihood of your savings account being hacked. Security risks abound, especially digitally, and especially as fake card readers proliferate. Credit cards have constraints on your liability of they’re lost or stolen, and most have automated fraud detection, and many offer cash back or other rewards. Many police teams offer free home security assessments to gauge your home’s vulnerabilities. A secluded cul-de-sac location is a lot more tempting to burglars than any property along a busy primary or secondary road. Perhaps loading cash onto pre-paid cards once/month is the way to go – once you deplete the tank, there’s nothing left to spend. Different cards can be designated for different categories – transportation, food/personal care, entertainment, etc.
Thanks for the comment, JS! Fraud protection is certainly an aspect worth focusing on. And I encourage everyone to always take the time to read the fine print when evaluating any financial instruments or accounts.
While I can’t speak for all debit cards, in this case the prepaid card I referenced in the article is protected by MasterCard’s Zero Liability Rules. From the Cardholder Agreement:
I don’t disagree with your point that credit cards often offer advanced fraud protection, as well as the potential for credit card rewards. But this article was never intended to pit debit cards against credit cards, or attempt to identify one as better than another.
The premise of the article is that you can eliminate impulsive and/or compulsive spending by using cash or a prepaid debit card for forms of spending which challenge one’s self-control. If someone struggles with overspending, a credit card won’t help in this way, no matter how attractive the rewards are.
Loading cash onto prepaid cards once per month, as you mention, holds merit and is more or less the strategy which I use. I transfer my monthly personal money balance to the savings account associated with the card, and keep only a very small balance on the card itself for mundane expenses.
Thank you, Marissa! I’m glad you enjoyed it. I certainly enjoyed writing it!
Interesting analogy – makes sense! And, wow! Navy life was sure something back in the day! Lop off the hand for stealing currants and raisins? That’s sure to instill some discipline! 🙂
Thanks, Enoch! Indeed it was. Sometimes it’s easy to forget the brutality and survival mentality that was present in centuries past. Suffice it to say I’d have two bloody stumps for hands – Mrs. FFP can’t stand my grazing habits when prepping food in the kitchen!
Great article! I believe the cash/envelope method really can help reduce spending. There is a psychological impact when spending cash vs. using a card. With that being said, I still use debit and credit cards for the convenience.
Agreed on all counts. I think the benefits of putting spending on “rations” can vary based on spending habits and personality type. For example, using cash really helps Mrs. FFP, but doesn’t alter my pain of payment much if at all. I therefore use a (pre-paid) debit card for my personal money for sake of the convenience factor as well.
Thank you for sharing! This was a great article and makes me reflect on my own spending habits.
My pleasure, I’m glad you enjoyed it! The topic served as an interesting one that spawned multiple ideas for future articles as I was writing.
Awesome post Mr. FFP! I loved all the naval analogies you make, and especially Jack’s “Why is the rum gone” gif haha.
Your envelope system for groceries and entertainment is something that I think is definitely necessary if people are struggling with budgeting. I love the envelope system because when it’s gone, it’s gone. You’re practically forced to follow it 🙂
Glad you enjoyed it, Eric! The naval concept ended up fitting even better than I thought it would as I was starting in on the article. The Jack Sparrow gif is hilarious to my own mind, simply because Mrs. FFP’s looks of sheer desperation years ago mirrored Captain Jack’s.
The envelope system has been around a long time, and it’s definitely not something I’d ever label as a creation of my own. But you’re absolutely right inasmuch that there is no more effective tool for breaking one of overspending!
I like the way you made the envelope system work for you. I remember having trouble adapting similarly when we had a bank with an online presence and no way to deposit cash. It put the envelope system and most automatic methods of tracking balances (like Mint) into a weird state.
That said, I’m more of a Nelson guy. =)
In my experience, I’ve always had far better results applying the underlying concept of any given personal finance system rather than rigorously following some one-size-fits-all methodology to the letter, and that includes the envelope system.
I’ve schemed long and hard regarding a way to leave our brick-and-mortar local bank and their robber baron tendencies behind in favor of the convenience and higher interest rates of an online-only bank, but the cash deposit factor always gives me pause.
For now, we’ve reached a compromise of keeping just enough cash at the local bank to avoid low balance fees, while keeping the majority of our cash at Ally Bank (which I highly recommend).
Thanks for the mention Mr. FFP. I agree with the word combat because everywhere we look we are enticed to spend. The “Recommended for You” is a marvel in data use, but such a dangerous place for those that easily succumb to these suggestions. Putting myself on a few monthly challenges has done wonders to change how I consume.
You are more than welcome, Cat! Your article is excellent in its own right, and it was simply fortuitous that I happened across it while writing this article. You made some quite salient points and I appreciated you sharing your own experiences with compulsive spending in your past.
Whether it be implementing a cash-only envelope system for problematic budget categories or participating in monthly spending challenges, I believe the key to overcoming overspending lies in becoming more self-aware.
Once we begin to understand how easily it is to become separated from our money, and how hard businesses work today (in some cases, deviously) to make that happen, seeing through such attempts becomes easier and easier until identifying the covert attempts to overwhelm our self-discipline via subliminal advertising becomes a favorite pastime.