What is the "step-down principle" as applied to household spending?

Personal Finance February 26, 2013 Print Friendly and PDF

By following the step-down principle, spending is reduced in gradual stages as opposed to eliminating spending on an item completely. The step-down concept for household budgeting was developed by Professor Alena Johnson at Utah State University. 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.

Again, note that you’re not completely eliminating the item. You’re just trying to purchase it at a lower cost to free up money to save or reduce debt. To illustrate the “step-down principle,” Professor Johnson provides an example of purchasing four pancakes for breakfast. The most expensive method (top step of the staircase) would be going to a “sit-down” restaurant like IHOP, Denny’s, or Friendly’s.

The next step down would be to buy the pancakes at a fast-food outlet. Go down another two steps on the staircase, and you might buy frozen pancakes at a supermarket and pancakes prepared with a dry mix. At the “floor” of the staircase would be the cheapest method: pancakes prepared “from scratch” (i.e., dry ingredients). Two advantages of the “step-down principle” are that it increases awareness of personal spending habits and offers a variety of options to make a purchase. T

he “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, a factory outlet, a consignment store, and thrift shops/flea markets/garage sales. Again, the more “steps down,” the greater the savings. You don’t cut out buying clothing completely, but you explore alternative ways to get more for the reduced amount of money you plan to spend.

“Stepping down” can also 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 12. You’re not completely eliminating what is obviously a pleasurable activity.You’re simply taking steps to contain the cost. Or you might “step down” by eliminating an appetizer, drink, and/or dessert when you eat out. Again, you’re still enjoying an activity (e.g., restaurant meal) but doing so for less.

Many budgets fail because people feel resentful or deprived. Nobody likes to feel that they can’t do something that 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.

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