Have you ever wondered if HOW you pay for something affects HOW MUCH you’re willing to spend? Is it harder to part with cash than to slide your credit card through the machine? Do a $200 pair of shoes give you pause to think if you’re spending cash more so than if you’re putting it on your credit card?

You betcha!

A study in The Journal of Experimental Psychology says that shopping with cash discourages spending while using credit or gift cards actually encourages it. Fittingly called “Monopoly Money”, the authors of the study – Priya Raghubir from New York University ande Joydeep Srivastava from the University of Maryland — say, “…using a less transparent form of payment such as a credit card or a gift card lowers the vividness with which one feels that one is parting with real money, thereby encouraging spending…”

This is one of the big benefits of using the Magic Jars to keep your spending on track. Because you’re dealing in cold, hard cash, you’re more likely to weigh your priorities carefully, especially when you are thinking of buying something that isn’t essential. As the authors say in their study, “The outflow of money is very vivid when individuals use cash making it painful to part with …cash payments are more likely to be used for justifiable necessities and less likely to be used for frivolous luxuries which may accentuate the pain of paying.”

Add the fact that the Magic Jars make is very clear when you’re getting to the end of the money and suddenly Needs become far more important than Wants.

Such a simple idea: being able to see when the money is coming to an end. So why is it that if we know we need to live within our means, and we know that money runs out, we are so willing to waste it?

If everyone has access to free banking (not everyone does, I know), why does anyone pay for banking transactions? If everyone can get from point A to point B in a car that costs just $160 a month, why does anyone plunk down $549 a month in car payments? And if a $40 pair of shoes will do the job, why are we willing to spend $240 on a pair of shoes?

If you did not have access to credit of any kind — no credit cards, no line of credit, no over-draft protection, no loans – would you be as willing to drop gobs of your hard earned money on things like expensive shoes and fancy cars? Or is it the fact that you can defer feeling the pain of payment that lets you convince yourself that you Need that shiny truck with the whopping monthly payment?

I’ve worked with a lot of people who cry about how much debt they have. They sigh despondently when’s they consider that they may never shake free of the burden. They cringe when they think about how much interest they’re paying every year. (Sure, $200 a month may seem like not too much, but that’s $2,400 you could have put in your retirement savings plan, so don’t tell me you don’t have any money!)

Those same people are quite willing to buy a new snappy pair of pants, a lovely set of dessert dishes, or their 37^th pair of shoes. Whazzup with that? Why has consumption become the main way we feel better about our lives?

No doubt the deferral of payment has a big part to play in desensitizing us to the pain of payment. If we can have dinner out with friends tonight, and not have to deal with the idea of paying the bill until two weeks Tuesday, it’s easy to swipe the card. And that’s why, if you’re going to use credit in any form, you need to be tracking your spending as you spend. It’s the ONLY way to keep you in the moment and create a sense of real cost when you use credit.

All you need is a notebook and pen. Put your balance at the top of the first page and then track every cent you spend manually so you always know exactly how much money is in your account. Whether you use a debit card or a credit card, deduct the amount you’ve spent from your balance so you’re feeling the “pain” of having spent the money and you’re not tempted to spend the same money twice.

Yes, keeping track of what you’re spending takes a little getting used to. But it’s well worth it to keep your accounts in balance and your impulses in check. Just think about how much time you spend earning your income. Shouldn’t an equal amount of time be spent in considering and tracking how you spend it?