Earning

The more frequently you get paid, the more money you spend, according to a new study

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Key Points
  • If a person who typically gets paid once a month starts getting paid every weekday they will spend about $250 more dollars that year, a new study found.
  • Those who get paid more frequently spend more because they perceive themselves to be wealthier.
  • To avoid falling in this trap, you have to "monitor cash flow," one expert says.

How often a paycheck hits your bank account affects how much money you spend, according to a new study published in the Journal of Consumer Research.

Those who get paid more frequently spend more because they perceive themselves to be wealthier, the study found. If a person who typically gets paid once a month starts getting paid every weekday they will spend about $250 more dollars that year.

There are plenty of reasons workers might get paid more frequently, the authors note, including a rise in the gig economy that has consumers pulling in multiple streams of income and payroll providers that allow employers to offer more variety in payroll frequency.

Apps like DailyPay and Earnin, that allow employees to access their pay at any time, and some banks also allow workers to access their pay early. (Fees and interest may apply, depending on the service, size of the advance and timeline.)

The problem with frequent pay is, "it's too convenient," says Mark La Spisa, a certified financial planner and president of Vermillion Financial in Barrington, Illinois. Even though you don't have more more, constant cash flow can make you "lazy" about following a budget, he says, because you know more money is just around the corner.

If you opt to get paid more frequently there are ways to curb discretionary spending.

Pay yourself first

With every paycheck, be sure to "pay yourself first," La Spisa says. This means transferring a portion of money to savings and investment accounts before you have the chance to spend it on nonessentials.

It helps to make these transfers automatic so the money is out of your hands, and not subject to impulse spending.

Monitor your spending

Look at your bank statements for the last three to six months. Aside from necessary expenses, where is your money going? Tracking your less-than-healthy spending habits can help you address them.

"You have to monitor cash flow to change it," La Spisa says. "If you don't monitor it, you can't manage it."

You have to monitor cash flow to change it.
Mark La Spisa
CFP

'Replace one bad habit with one good habit'

Once you identify what you're overspending on, ask yourself if there is a comparable, more affordable, substitute. "Replace one bad habit with one good habit," La Spisa says.

For example, if you go out to eat four days a week, try cooking one night instead. Or if you're making weekly Target runs that result in your buying more than you anticipated, try going once every other week.

A plan that involves you totally depriving yourself of what you like to do is a plan you probably won't stick to, so start small.

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