One of the differences on The Physician Philosopher – compared to many other personal finance and FIRE websites – is that I like to remind people that it’s okay to spend money. Shoot, I financed a car! Yep, you read that right, a personal finance blogger financed a car. It is important to remember that – while saving is important – we also need to make the heart happy. Unfortunately, spending money often produced consumer regret. We can find that happiness we are looking for (and avoid the consumer regret) through the art of intentional spending.
While it’s important to achieve our big picture financial goals, it is also important to remember why you set out on this journey: to obtain the financial freedom so that we can prevent/escape burnout and produce a life full of contentment. I’m here to tell you that you can obtain both wealth and wellness at the same time and make both your head (financial decisions) and heart (things that bring you joy) happy!
What is Intentional Spending?
The idea behind intentional spending is to recognize that, while budgeting/tracking spending is vitally important to your financial success, it is also important to let loose every once in a while. As long as we use a backwards budget to make sure we are achieving our big picture financial goals, we can spend the rest however we please.
However, there are many studies that show Americans are really bad at letting loose. Americans leave billions of days of vacation unused each year. Even when we do take vacation, we apparently aren’t very good at it. It often leaves us less happy when we return from vacation than when we left.
The reason? Harvard seems to think that it’s because we plan poorly when we take the vacation and the travel stress (if planned poorly) off-sets any happiness we would glean from the trip.
Interestingly, there has also been good research to suggest that how far we commute to work also affects our life satisfaction! Apparently, how much and how well we travel has a profound impact on our enjoyment in life.
Because we aren’t any good at letting loose ad lib, this means we need to be very intentional when we do let loose. Don’t forget that the vacation analogy extends even further. We’ve discussed that a poorly planned vacation with loads of travel stress actually hurts you. Similarly, spending money you don’t have and that isn’t in your budget will increase your stress!
If it causes you to go into debt, finance/leverage a purchase, or prevent you from adequately saving, usually it is not worth it! That is not intentional spending. Intentional spending makes your head and your heart happy! If it isn’t accomplishing both, it isn’t intentional spending.
Steps to Intentional Spending
Here are four steps to help produce some intentional spending in your lives!
Step 1. Backwards Budgeting
Part of Intentional Spending means budgeting.
Don’t spend money without thinking about where it is coming from or what it will affect. Make sure that you have the money to spend and that it will not impact your ability to aggressively save or destroy debt!
Are you still going to get to your Financial Plan goals? Check this box first. This is step 1, 2, and 3 of intentional spending. Use products like mint or personal capital to see where your money is currently going.
Then, set up a backwards budget to help you attack the big picture goals. What you have left, is the money you can spend intentionally. Remember, pay yourself first!
Step 2. Take a Minute to Think
While we can consult the research on what makes people happy, it is also important for us to spend time thinking on the subject for ourselves. Most studies on the subject find that people generate more satisfaction from experiences rather than from things.
This could mean going skiing in the mountains, spending a long weekend at the beach, or going to a Big City you’ve never seen. As mentioned above, though, it should be well planned and travel stress kept to a minimum!
Step 3. Research Money Spent on Stuff
First of all, take inventory of all of the stuff in your house and your garage. Think about how happy it made you at the time of purchase. Then, think about how happy it makes you now? You may even have some consumer regret. The reason many times of this is that we made a purchase with little thought.
When you aren’t spending money on experiences and do choose to spend money on things, take some time. In fact, if it is a substantial cost I recommend you endorse The One Month Rule. This will allow you the time to do research. Find the best product for the best price.
For example, when wife and I needed a new mattress, we did our research. Apparently, mattresses are most cheaply purchased in May. So, we waited until then to purchase. After all, there are very few “mattress emergencies” that would necessitate a dire need to buy one!
What constitutes “big purchase” will likely be different for every person, but – whatever that number is – spend some time reseraching big purchases. You may find during the process that you’d later regret it.
Step 4. Apply the 10% Rule
It is important to keep our spending in check, particularly when we receive large amounts of money. When we receive a bonus, raise, or windfall; this is the perfect time to apply The 10% Rule.
The gist of the 10% rule is to take 10% of any post-tax money you receive and to spend it on whatever your heart desires (after thinking about steps 1-3 above). I won’t put you in a box, but we do probably need to limit it.
The other 90% goes straight towards your wealth accumulation rate (WAR). Abiding by this rule is what allowed my family and me to pay down $200,000 in student loans in 19 months, and increase our networth $250,000 in one year.
The purpose of the intentional spending philosophy is to remind you of one thing. As long as you are obtaining your financial goals, it is perfectly acceptable to spend money! Budgeting and personal finance can become so restrictive that it affects your marriage and maybe even your mental health.
Just like you deserve (and need) to take that well planned vacation to relieve stress, produce work satisfaction, and increase motivation at work; you need to perform some intentional spending!
What do you think? Do you spend intentionally? Do you overspend? Does your budget stress you out? Do you need a break? Leave a comment. I want to hear your intentional spending stories!