How you spend your money is a loaded subject. Nearly half of Americans deem finances a hard subject to address with others. They rate it more difficult to navigate than politics or religion. Sixty-eight percent would rather disclose their weight than talk about finances. More than 40 percent don’t even broach the subject with the person they marry before entering into holy matrimony. Even to yourself, how y0u spend your money is a topic you most likely avoid thinking about.
However, treating money as a taboo subject hurts people. Families tend to feel chronically anxious due to a lack of clear conversations about money. Many times, with little discussion about goals and expectations, people end up following some financial gurus’ guidelines to the letter. This can actually be damaging to their personal finances. Plus, it can make them feel like “financial sinners” for making different choices. That”s why it’s time to think differently about how you spend your money.
Rules About How You Spend Your Money Can Lead to Regret
James Lenhoff, CFP, the president of Wealthquest and the author of “Living a Rich Life,” has seen dozens of clients who’ve accumulated a lot of money in their later years — and a lot of regrets. “Many of them get to a stage where they realize they didn’t create many memories with their money,” Lenhoff says. “They’re watching their kids have families and regretting all the things they didn’t do — they’re seeing the breaks or weaknesses in the logic.”
These clients often see their own kids are reluctant to take vacation time or splurge on a family excursion, yet many of these behaviors have been “inherited.” However, it’s hard to lay all the blame at their feet in a society that champions short-term “good” feelings over long-term satisfaction. “Society reinforces this mistake of thinking that status symbols and things are worth more, encouraging us to buy the bigger house, the newer car. The messaging is all geared toward making us feel better about ourselves,” Lenhoff explains. “In the end, we all want experiences, but society has confused us into thinking products are experiences.”
In order to combat that messaging, most personal finance books give us rules to follow that keep us from splurging. But, it’s a Catch-22 because the money “rules” teaches us to grit our teeth and “do the right thing.” This is always assumed to mean saving more. “There’s an assumption among some financial experts that we need to treat people like children, give them harsh black-and-white boundaries,” Lenhoff says. “Like kids, they develop a sense of shame for disappointing Mom and Dad. The behavior is so deeply ingrained that even when they have saved enough, they are paralyzed by the ‘rules,’ and they can’t let go and use some of their money to enjoy themselves.”
Forces That Impact How You Spend Your Money
These two forces are always fighting within us. That means many people end up being filled with money-driven regret for one of two reasons. First, they spent their money on products, which didn’t fulfill them. Second, they hoarded their money, waiting for the right time to spend it.
However, they could never relax enough to do so when it was time. The good news is that those outcomes aren’t inevitable. There are steps you can take to avoid financial regret.
As Lenhoff says, “Nobody lived beyond their means because they couldn’t do math; they were emotionally motivated to do something.” He recommends that younger savers and spenders approach their relationship to money in a way that may be antithetical to the “rules.”
Find out where you stand
Because of the taboos surrounding money discussions, most people don’t actually know where they fall on the financial spectrum. Are they in a healthy position or not? Many couples, Lenhoff explains, contain a “Go” and a “Whoa”: The “Whoa” is the self-controlled saver, while the “Go” is the free-spirited spender. “Go” assumes they’re fine, but “Whoa” assumes they’re not. The problem is that neither one really knows who is right.
To overcome this, you must have a clear-headed conversation to lay out what you have and where you’re going. What does it take to make your life work right now? And, what are your non-negotiable goals for your family? A financial planner can help you outline how far ahead or behind you are on hitting those targets. Then, once you’re confident that you’re saving what you need to save each month to fund your goals, you can spend the rest as you like.
Don’t be fooled by others’ exteriors
In a world where we’re constantly cajoled to keep up with the Joneses, people often look around and feel their neighbors, friends, and family members are doing better.
But, the secrecy surrounding money — and the prevalence of living on credit cards — has erroneously led us to assume others are killing it. In reality, they could simply be swimming in debt. Don’t make decisions on how you spend your money based on how well you believe others are doing.
Use your net worth as your golden rule
Many people are overly focused on their income as a measure of progress. However, your income doesn’t matter if you aren’t using it to grow your net worth. If your net worth didn’t go up last year, that’s a problem no matter how much income you had. Your net worth changes only through saving or paying down debt.
You should be doing both. Don’t focus so much on paying down low-cost debt that you miss opportunities to save for future goals. Make sure you’re using your income to grow your assets over time. A growing net worth is the clearest indication of financial health.
Budgets are very restrictive, and they start from made-up numbers. Lenhoff says, “Most people approach budgets with ‘What can I squeeze myself into?’ They should start with ‘What’s my current reality?’” Just because you could eat freeze-dried Ramen for six months doesn’t mean it’s likely you will.
And, a shoestring budget that’s a far cry from your usual existence will feel overly prohibitive. Also, it’s impossible to stick to. Instead, create a spending plan that focuses on how you’ll spend your money rather than on how you’ll avoid spending your money. Acknowledge that you will be spending money so you can plan to spend it wisely.
Think not just about how the money will serve you in the future
There’s truth in the saying, “You can’t take it with you.” Therefore, you need to celebrate milestones along the route to your biggest goals. Enjoying the money you’ve earned while meeting your financial obligations and saving for your long-term goals shouldn’t be considered taboo but smart. It’s giving you pleasure now and later. This is what money that exceeds your necessities is intended to do.
While money may often be treated like a dirty secret, it doesn’t have to be a source of pain and regret. By shifting your mindset about how you spend your money now, you can ensure you use it in a way that brings you peace today and security tomorrow.