We’re all still spending a lot of time at home. And for many of us, that means our spending habits have continued to shift. I’ve helped a lot of my clients think through moving to a new place, buying a car or bike, or changing jobs in the last year. Some trends I’ve noticed are that most of the people I talk to aren’t spending the kind of money they used to on travel or eating out, but many are spending more time shopping, thinking through a charitable giving strategy, or saving up for a big purchase / event / fun thing for when the pandemic is over.
It’s a huge myth that all financial advisors want you to do is save, so I wanted to share my thoughts on how to really splurge when it comes to your finances.
When You Think About Your Ideal Life, What’s Most Important to You?
It’s really important to do some work to start aligning your spending with your values in life. Most of us don’t think strategically about our budgets. What are the three biggest line items of my budget? And do they reflect the things that are most important to me? If not, why not?
This is also a really great way to prioritize where to spend discretionary income. When there’s a finite pool of money for discretionary things many folks default to spending money in the way they always have (think gadget budgets, clothes shopping, or <fill in the blank with whatever your default might be>) But what if you reprioritized to splurge on the things that are truly most important to you in life?
For many of us, spending on experiences and hobbies versus things, tend to come up as the most important things. Your answers to what is most important may change over time and depending on circumstances too.
My husband and I really love travel — it’s a time for us to reconnect, explore and adventure. But COVID has made it hard for us to do the kind of trips we normally would. So, we stuck close to home in the last year. We moved to a new, larger place to make our day to day more comfortable and we traveled closer to home with car trips to cabins.
No matter what your priorities and focus are – I give you permission to splurge on what’s most important to you.
Sometimes it might mean saving up for a while before you can splurge, and that’s ok too.
What Makes Life Ridiculously Fun?
This is a super fun question and I bet no one has ever asked it to you before. It’s hard when we’re juggling our careers, families, friends, and everything else on our to-do list to stop and think — when do I have the most fun?
Let yourself dream a little — whatever you come up with would be a really good thing to splurge some money on.
Last summer, I found myself spending a lot more time outside at the beach and on the water as a result of COVID-19. I gave myself permission to splurge on boat and stand up paddle board rentals quite a few times over the summer and it provided hours of fun and lasting memories. It’s also nice because now that summer is over I don’t have to find a place to store all those things. Renting works just fine for me!
Save First and Then Spend The Rest
When I work with clients, I help them develop an anti-budget. I don’t like to focus on categorizing all the line items of spending and figuring out what you spent on Netflix versus eating out. I’m not interested in policing spending and I actively advocate for spouses to NOT police each other’s spending. Instead, we create a save first, spend the rest plan. First, we look at retirement savings, which comes out of your paycheck on a pre-tax basis. Based on the client’s goals and needs we start with a minimum of 10% retirement savings rate and then we tick up that amount each year with raises.Feel like you need more support? I’m launching a course in fall 2021 to help you build financial resiliency. Click here to be the first in line.
Once retirement, taxes and benefits are taken out of your paycheck, you’re left with take home pay. My rule of thumb on the save first, spend the rest plan is that 20% of your take home pay should be allotted to debt repayment (like student and credit card debt, not mortgage or car debt), savings and charitable contributions. So, if your student loan payment takes up 10% of your take home pay, for instance, then you should be saving the other 10% for charity and/or your future self needs (which could include, but aren’t limited to travel, house purchase, or other short or long term goals).
Split Your Raises and Bonus Between Your Current Self and Future Self
When should you splurge? A perfect time is when you have a new influx of cash — this could be a tax refund, gift, inheritance or a raise/bonus.
Without some foresight we may get the urge to spend all that windfall without thinking too much about the things that are truly most important to us or make life ridiculously fun.
So first, go back and ask yourself those two questions again before making a decision.
Another idea is to figure out a split, whether 50/50, 70/30 or 60/40 of spending versus saving those new funds for something in your future. It could be retirement, saving for a house, going on a big European vacation when the pandemic is over. Maybe you handle each type of windfall a different way.
I often advocate for splitting half of your raise with your retirement account. If you get a 3% raise, then increase your retirement contribution by 1.5% and then think through how you want to spend the other 1.5% — is there something really important to you that you want to splurge on?
I hope these tips have been helpful with a little strategic planning you should be able to splurge from time to time completely guilt-free.
What do you like to splurge on with your finances?