Spending guilt is one of the most common money emotions that I run into with clients. For many, their financial success has been a product of wise money decisions combined with a bit of frugality over the years. They’ve gotten to a place where their finances are in great shape, but they are still hesitant to loosen their purse strings and genuinely enjoy their wealth. This can lead to guilt, stress, and unnecessary thriftiness, none of which help them experience complete financial fulfillment.
This can be especially difficult for retirees transitioning from decades of accumulation, frugality, and investing into a time of enjoyment, drawdown, and spending. But, trust me, the transition to retirement can be challenging enough without the feeling of guilt with every purchase or transaction.
Through my work over the last three and a half decades as a CFP® professional, I’ve identified three steps to help people overcome their spending guilt.
First, understand your spending.
The first step to guilt-free spending is to take a step back and assess where your money has been going. This is an eye-opening experience for many as they realize they may be spending more in certain areas than they thought while simultaneously spending less in others.
The goal here is not to judge your spending but simply to review it with a curious mind and better understand it. So, as you go through your spending and review transactions, make a note of anything that seems different than you might have expected.
- Are you spending money on the things that you value?
- Do you wish you were spending more or less in any specific areas?
- Is there anything surprising about your spending?
As you review, you should start to get a feel for where your money is going and where you would like it to go, which means it is time for step number two.
Second, develop a future-based spending plan.
The next step towards guilt-free spending is to craft a future-based spending plan. This plan outlines where you want your money to go, rather than wondering where it went. The best part about a spending plan is that it permits you to spend money on what’s important.
One of the essential pieces of this step is to get a clear understanding of what you enjoy spending money on. So as I walk through this step with my clients, I help them question what they enjoy spending money on to get a clear understanding of where their money should be going.
As a general rule of thumb, a reasonable spending plan will loosely follow the 50/30/20 rule. Thus, 50% of your spending goes towards things you need (fixed expenses), 30% goes towards your wants (variable expenses), and 20% goes towards your financial goals (savings/debt repayment).
What is a fixed expense?
A fixed expense, or an expense that falls under the “need” category, is something you have to pay for each month, no matter what, and it generally doesn’t fluctuate much. This can be things like your mortgage or rent, utilities, car payment, insurance, food, and more. Anything that you absolutely must have to survive would be considered fixed. These fixed expenses should make up roughly 50% of your spending plan, but exact amounts will vary from situation to situation. As a note, a fixed expense like utilities can fluctuate each month more than other fixed expenses but are still considered fixed because they must be paid each month. Therefore, they are “fixed” to the budget.
What is a variable expense?
A variable expense, or an expense that falls under the “want” category, is something that you can decide whether or not you want to spend money on each month. Some examples include clothing, gym memberships, dining out, entertainment, travel, and more. These are the optional expenses that you may enjoy spending money on, but you would be able to cut them out in a pinch. Thus, they are “variable” to your budget, and as a rule of thumb, should make up about 30% of your total spending.
As you craft your budget, be sure to map out each section, including fixed, variable, and savings, to get a clear idea of where you want your money to go each month. Keep in mind that a new budget will take time to adjust, and don’t be surprised if you need to do some fine-tuning for the first six months to get everything on track. As you develop your plan, the biggest thing to keep in mind is to focus on spending money in the areas you value and decreasing spending in the areas that are not important to you. This will mean different things for different situations but is a great guiding compass when developing your plan.
Third, automate your savings.
The final step towards guilt-free spending is to automate your savings plan. Your budget should include a detailed breakdown of your savings category, which should account for roughly 20% of your total spending. Remember, the money you are setting aside today is simply money you will spend in the future – it’s just delayed spending. That’s why this applies to you if you are working or if you are retired.
In this breakdown, once you’ve identified where you will save or focus on debt repayment, you can set up automatic savings to reach these goals.
For some, this will look like setting a specific contribution amount from their paycheck to go into their employer-sponsored retirement plan. For others, it may be setting an automatic monthly transfer from their bank account to their investment account. Or, if you are already retired, having a portion of your dividend or interest income reinvested for future spending while keeping pace with inflation. Whatever the case may be, by automating your various savings goals, you ensure that you will consistently reach your goals over time and can rest assured knowing that everything left over is spending money.
This can help remove a lot of the guilt around spending since you know that you are on track to hit your goals, you’ve already saved the amount you want to, and everything that is left-over is meant to be spent and enjoyed, using the plan you’ve laid out.
I am here to help.
Money can be challenging, but it doesn’t have to be. Let’s chat if you’re feeling spending guilt or think you could benefit from a custom future-based spending plan. As a CFP® professional, I help my clients understand their spending habits and develop a clear plan to reach their financial goals while alleviating their money stress and achieving their full financial potential.
Schedule a complimentary consultation below, and get started today.