Stepping down can work to reduce spending

Sep 28, 2007 at 9:29 p.m. ET

Reducing our spending is a stifling idea for lots of people. It means that we can't do what we want. Alena Johnson at Utah State University has reframed this idea and calls it the step-down principal. Barbara O'Neill from Rutgers University describes how it works.

Have you heard the television advertisement for a product that helps people gradually quit smoking? It uses the words "step-down" over and over to indicate how people gradually reduce their smoking in stages. According to the manufacturer, this makes it easier to quit smoking than going cold turkey and trying to change from smoker one day to non-smoker the next. The odds of successful behavioral change are greater when a person makes small, gradual changes rather than trying to make one big change all at once.

Stepping down also can be used as a method to reduce household spending. To visualize the step-down principle, imagine a staircase with four steps. On the top step is the most expensive way to purchase an item and on the floor below the bottom step is the least expensive purchasing method.

Think about buying four pancakes for breakfast. The most expensive method (top step of the staircase) would be going to a sit-down restaurant and paying about $3.49 plus tip. The next step down would be to buy the pancakes at a fast-food outlet for around $1.99. Go down another step on the staircase and you might pay 77 cents for frozen pancakes purchased at a supermarket and 25 cents for four pancakes prepared with a dry mix. At the floor of the staircase would be the cheapest method of all, about 16 cents for a serving of pancakes prepared from scratch.

The step-down principle also works well with other discretionary household expenses - for example, clothing. Steps of spending, from top to bottom, might include a department store, a discount store, factory outlets, a consignment store and, at the bottom, thrift shops, flea markets and garage sales.

Stepping down also can refer to the frequency or amount of a purchase as well as where it is made. For example, you may decide to eat out six times a month instead of twelve. You're not completely eliminating the activity, you're simply taking steps to contain the cost. Or you might step down by eliminating an appetizer, drink, and/or dessert.

Many budgets fail because people feel resentful or deprived. Nobody likes to feel that they can't do something they enjoy. If you're looking for ways to improve your finances without crimping your lifestyle, try stepping down. You'll remain in control of your finances by choosing realistic steps. You'll also see quick results that can serve as an incentive for additional changes.