Spending thresholds help establish value in spending decisions. Often this mental exercise is done subconsciously. Think about it. When you find an item you like, you determine how much it costs. Then you either quickly decide to buy it, “because it’s only five bucks” or a consciously evaluate the item. At that point you either talk yourself into or out of the purchase depending on your mood, how much money is in your pocket, and how much you feel you need the item.

Let’s say there’s a barber who charges $30 a haircut. A person, for example, may think, it’s only a haircut, I’ll get it. That’s their subconscious spending threshold, $30 dollars. Everything below that amount is decided without much thought or energy. Everything over that amount needs some level of consideration.

Consumers have different spending thresholds that are largely determined by the financial situation and income. The higher the income the higher the threshold is likely to be. College students living on a part time income may think $5 in spending needs some thought. For others the amount may be as high as $50 or $100, before stopping to think about the spending decision.

Why Thresholds Matter

Most of us do not have unlimited funds and your spending threshold can eat into your budget. This is spending you for which you can’t account. eally Things you buy might include a daily paper, daily coffee, an appetizer at lunch, or $20 bucks to the Boy Scout fundraiser. If this occurs frequently it can amount to hundreds of dollars each month in extra expenses that have very little value.

Let’s say you’re spending threshold is $20 and you spend at that limit 4 times a week. This totals $320 a month or $3,840 per year. Add a partner’s spending and that can drain $7,680 out of the family budget in a year’s time. It’s easy to see how leaky spending could pay for a vacation, pay off a credit card, or add to your retirement fund.

How to Manage Threshold Spending Effectively

Realistically no one wants to track every penny that is spent. Many cannot track spending effectively for 30 days, let alone long enough to get thousands in debt paid off and money for retirement.

Strategies that actually work:

1)    Consciously lower your threshold. Decide on a lower amount you will adhere to. For example, anything over $5, you will make a conscious decision about. Anything over $100 is discussed with your partner. This creates the habit of really thinking about your purchases and what value it ads to your life. It can also open communication about how money is being spent.

2)    Set a spending range. Give yourself a set amount that you can spend however you want each week, month or paycheck. You can spend it on lottery tickets and lattes or save it for a larger purchase but the “allowance” is in the budget.

3)    For recurring expenses you really enjoy, find a less expensive way to enjoy it. For example, instead of buying a daily paper, subscribe to it. Instead of the daily cup of coffee from a local coffee shop, buy a nice coffee maker to make your own. This fulfills the habits that offer value, without the higher expense of spontaneous purchases.

These solutions will grant you more control over spending and provide some structure that can be worked into the budget to meet your needs and wants. It will also increase the chances of successfully sticking with an established budget without creating a sense of deprivation.