“How do you know if it’s okay to spend money on this?” I have been fielding this question a lot lately.
As an advisor, part of me wishes I could sit on your shoulder and tell you when to swipe or not to swipe that card. Even if you could support my weight, that approach is far from practical. So how do we balance when we spend and when we delay spending for another day?
One way is to set aside money from each paycheck or each month that is intended for spending. We call this spending (and saving) with a purpose. I love doing this! I love that I get to go into my bank’s website and give the account my own title. I love automating the process so it’s one less thing I have to remember to do. The key, though, is to spend that money.
Most of us will want to see that account go higher. We’re hard wired to see savings accounts that way. But this isn’t your typical savings account. If you set up an “Awesome Vacation” fund with a goal of $2,000 and you reach $3,000…you’re failing! The purpose was not to get to $3,000, it was to get to $2,000 and then go on vacation. The financial consequence of saving that extra little bit is negligible if not nonexistent; you have more money saved than planned, but the lifestyle consequence can be huge if the money saved never gets put to use as planned.
If your “Sweet Large Purchases” account whose goals was $1,000, is up to $2,500 and you’re barely reading this email because you haven’t purchased your new laptop yet…you’re failing! Spend it! It’s ok to spend the money that is being saved for that exact purpose.
I had to take money out of our “Vacation” Savings account. I felt awful. I felt like I should have been able to pay for the vacation out of other monies. To see the balance drop was terrible and it was also completely unnecessary to feel that way. The whole purpose of that account was to provide a bucket of money to spend on vacations!
My job is not to judge why or when clients spend their money. It is to understand what is important and help design systems (a plan) to better accomplish or highlight their priorities and goals.
Questions to ask yourself:
- Do I want separate accounts for certain goals or expenses?
- Am I automating my finances the best way possible?
- Do I feel comfortable, uncomfortable, or too comfortable with how I spend money today?
Would love to hear your thoughts!