One topic within personal finances that doesn’t get discussed often is how spending money is perfectly okay. Gasp!All gasping aside, a recurring theme in the finance industry is how small purchases add up over time and are detrimental to your finances.
You’ve seen the “latte” media headlines and how you’re missing out on thousands and thousands of dollars a year.
It’s not just media articles either, there are plenty of financial experts who shout the same cliche statements.
“Cut all your expenses,” “Stop buying that daily coffee,” etc. You really start to feel attacked or shameful about your purchases.
But, you shouldn’t feel guilty about spending money if it improves the ROI of your life and you have a spending plan.
Determining the ROI In Your Life
We have one life to live and time really does creep up fast. It still feels like last week that I was heading off to college and now as I write this, I’m in my early 30s. (Seriously, WTF!)
And as much as I love saving and investing, I make no apologies in buying things I love that add value to my life — and neither should you!
I’ve always felt that hoarding money and never using it to experience things you love, is a missed opportunity to get the most out of life.
Instead of cutting all your expenses (even things that bring you joy), focus that expense-cutting effort on things that you won’t miss at all.
The simple way to put this:
- Figure out where spending your money will bring the most ROI for you.
- And the areas where you are fine cutting back, be more aggressive there to save money.
Typically, this concept is called conscious spending.
Instead of being cheap or just spending blindly, you decide what to spend money on and what not to. You’ve created a spending plan and stick to it — guilt free.
For this to work well for me, I still ensure I stick to my consistent plan of paying yourself first. Meaning, I’m saving and investing a consistent percentage, then paying my bills, and leaving the leftovers to use as I wish.
Since I’m not going into debt to buy things or neglecting my financial future, there is no negative impact in spending money on things I enjoy.
Now, you might want to do something similar as me, but maybe you’ll want to have a separate “spending fund” where you save a percentage away to use for your purchases.
It’s up to you to decide how you want to approach this.
Where Spending Money Creates Trouble
In America, there certainly is a debt crisis abound. While much can be attributed to student loan debt, it’s only a portion of our woes.
“Total revolving credit balances are $1.03 trillion as of January 2019. The figure, reported monthly by the Federal Reserve, is the total amount of revolving credit balances reported by financial institutions, the overwhelming majority of which are credit and retail card balances, according to the Consumer Financial Protection Bureau (CFPB). “
As you can see from that data, consumer debt in America is insane and it seems we have a bit of a spending problem.
Yet, here I am telling you it’s okay to spend money. Uh, okay…
But here’s the thing, it’s fine to spend money but you do need to get your financial priorities in place or you’ll easily become a statistic.
There are a few reasons though, where spending troubles begin.
Lifestyle creep or “lifestyle inflation” occurs when your standard of living grows with your income rising. And what you might have seen as luxuries in the past, are now becoming necessities in your life.
Since you have more income at your disposal, temptations slowly peak your interest or you tend to buy more expensive items because you can afford to, even if you don’t need it or doesn’t add value to your life.
Trying to Keep Up with Joneses
I’m sure you have heard this before, sorry to include this cliche phrase but it’s valid.
We want to keep up with friends, neighbors, and what others have for fear of being left behind. Even if this means overspending and buying things that add no real value personally.
Friends or family may also guilt you by saying things like, “You don’t have this yet?” or “Oh, you have to upgrade to XYZ.”
These make you feel like you are being left out or even more self-conscious. An easy trap to overspend and get in financial trouble.
Too many people spend money they earned..to buy things they don’t want…to impress people that they don’t like.” – Will Rogers
Maintaining A Consumer Mentality Only
Having consumers is good for the economy and like I mentioned earlier, spending on things that bring you joy in your life is totally okay! But the problem becomes if you only have a consumer mentality.
Shopping can be addicting and making purchases is so easy today. All it takes is one click, thanks to places like Amazon and other online stores. The convenience factor is amazing, but it makes it too easy for everyone to over-consume.
Lack of A Spending Plan
And here is where consuming can really be controlled, if a plan is developed. No one should tell you what or how to spend your money, but you must decide what is important.
A lot of times we make purchases for the instant gratification because we see something, we like it, and must have it. I can’t tell you how many times I did this in my early 20s.
No thought goes into the purchases other than we want it now.
However, developing a simple spending plan can help remove consumer debt and improve on a lack of savings.
How to Spend Money Guilt Free
The big caveat to spending money, is you really need to have a spending plan in place. But not like a traditional outline you may see with budgets or other finances.
Instead, it’s about asking yourself the important questions about how you want to spend your money.
This means your plan is unique to you and is exactly why you should not feel guilty or shamed for your purchases.
The basics of your spending plan should answer:
- What do I value most for when I spend money?
- Where am I overspending, that can be cut and I wouldn’t miss?
- Do I purchase things I could find cheaper? Used? Or borrow from someone?
- How does spending money on XYZ impact my ROI of my life?
- Am I paying myself first before spending, or do I rush to buy things because I want it now?
- Am I spending money too quickly without thinking about why I’m buying said item?
These questions help you understand where your spending priorities are, where you might be overspending, and ways to cutback on things that aren’t as important to your life as you may have thought.
The challenge here is getting in the habit to think about spending more analytically. And to start to process and think purchases through, instead of via your impulses.
If you need, start outlining these questions with answers and align it with your current state of finances. You get the bigger picture and it can make you think more about what matters to you in life most.
If you are in major debt, then you should not be focusing on how you should be spending money. Instead, work on personal finance basics and tackle that debt.
But if you are out of debt or have none currently, I don’t agree that you must live extremely frugal and keep your spending super tight.
If you are taking care of your finances consistently, you should not feel any guilt about buying something that brings you joy in life.
You want that daily workday coffee because it makes your day better? Then do it! But it doesn’t have to be just coffee.
Maybe you are fond of new cars, or you collect comics, or enjoy spending money going to sporting events. If it is something you love and can afford it, go for it.
Cut back on the things you don’t need or value instead.
For instance, I love traveling and exploring new places. I’m happy to spend the money on flights and going out to eat in those new locations.
But, I also seldom buy things for myself at home like new clothes, shoes, or even go out to eat much.
I cut back on what I don’t value as much (new clothes, going out to eat at home), but I’m totally okay spending on new traveling experiences.Do you feel guilty about how you spend money? Or do you indulge in things that bring you joy, yet cut back on expenses that don’t? What are your thoughts on the above? Let me know in the comments below!