Written by Trent Hamm, The Simple Dollar is a popular personal finance blog that chronicle's one man's road back from overwhelming debt to financial security. Hamm declared the contents of the blog to be in the Public Domain in 2008 and available for sharing when attributed properly. We will share a couple of posts a week.
When people find themselves first recovering from financial disaster, they often bear down very hard on every dime. They scrutinize every expense and every receipt, looking for a way to squeeze a few more dollars out of their life so that they can push down those debts a little bit.
At that point, fear is often a big motivator. Their finances pushed them close to the edge of losing a lot of things that they cared about and they didn’t like that helpless feeling at all, so they’re motivated by fear of that situation and desire to get as far away as possible.
Eventually, two things happen. First, people acquire some breathing room. Their debts have fallen from scary to manageable. They’re able to handle their monthly bills and their debt load is falling at a very steady rate. Second, their motivation begins to lag. That fire that burned in their belly at first begins to wane. The fear isn’t as strong as it once was and they begin to miss some of the things they cut back on.
That’s the point at which people often want to “let up” on their financial discipline.
I get a lot of emails from people in this situation. They want to know if they’re ready to “let up” and spend their money on other things.
For me, at least, I found a channel for the desire to “let up” in budgeting some space in my life for free spending. Each month, I allot myself a certain amount to simply spend on whatever it is that I want. If I want a board game and can afford it within that amount, I buy it. If I want a book and I can afford it within that amount, I buy it. If I want to stop at the coffee shop that’s about half a mile from my house and I can afford it, I stop there. I usually put some of it away each month for my big annual splurge, which is a trip to Gencon with some friends.
Those are things I didn’t allow myself when I was first bearing down on my finances. For the first four years of our financial turnaround, I didn’t go to Gencon. I went for many months without buying a book or a board game, even though reading and tabletop gaming are my two main indoor hobbies.
One suggestion for doing this is to pay down your debts until you can fit all of your monthly bills (including things like food and gas) into 60% of your take-home pay. Then, adopt a 60/20/20 budget, where 60% of your budget goes for things you need, 20% of your budget is saved for the future, and 20% is spent on whatever you want. You should use that 60% as a “debt snowball” to get rid of all of your remaining debt, at which point you could move to a 50/25/25 or a 40/30/30 plan.
Having said that, there are definitely some things that I never “let up” on.
First, if a product I buy regularly serves my needs, I see no reason to buy a more expensive version of it. I’m happy with generics for most of our household supplies, for example. I don’t consider it a luxury to buy an expensive dishwashing detergent if I’m happy with the cheap one I regularly buy.
Second, a splurge that is repeated becomes a habit, then it becomes normal. I like stopping at the coffee shop every once in a while – it’s a real treat. I learned long ago, though, that if I stop there every day, it quickly stops being a treat. It just becomes normal and expected. The joy that I get out of the stop at the coffee shop quickly evaporates.
The same is true of anything. If I buy just a few books a month, they’re each a nice treat. If I buy several a week (and trust me, I could read them all), then they’re no longer a treat.
I get far more value out of the non-essential things in my life if I make sure that they remain special treats instead of routines. If I repeat them all the time, the pleasure of anticipation, the joy of the experience, and the savor of the memory all fall by the wayside.
Third, I spend time thinking about the big things that I want… and the little things just pale in comparison. I have a six year old daughter who draws pictures of the Eiffel Tower and watches Ratatouille for hints of French culture. I can’t imagine anything more fun than landing at De Gaulle Airport and seeing her excitement at her first glimpses of France. I deeply want to be with her when she sees the Eiffel Tower and the Arc de Triomphe. I want to hold Sarah’s hand as we stumble through the language together and enjoy a bit of the countryside.
I recognize that I will never get there if I spend money foolishly. When I look at an item I want, like an iPad Air, I think about how the cost of that item will swallow up most of one of our plane tickets. That makes it easy to put it back on the shelf.
Fourth, I still view it as a mistake to spend significant money without thinking about it. My life was once littered with artifacts of purchases made without forethought. I’d buy something because I’d hear about how great it was without spending time considering whether I would actually use it.
I bought many, many DVDs and Blurays because I thought the film was great without considering whether I would watch it enough times to make the purchase worth it (hint: you need to watch something several times to make the purchase of a DVD/Bluray cheaper than the cost of just renting it when you want to watch it).
I bought many technology devices because I thought they would solve some problem in my life, only to discover that I didn’t really have the problem or that the device didn’t really solve it.
I bought many books because I wasn’t patient enough to wait two weeks on a library wait list.
None of these purchases (or many others like them) made my life better in any way. Instead, they left me possessing items I didn’t use very much or that I could have purchased for significantly less or borrowed for free if I exhibited just a bit of patience.
“Letting up” on these kinds of purchases just seems like a giant mistake to me.
So, what does all of this mean? I splurge, but I do it with some sense. I buy stuff if I know I’ll actually get significant personal value from it.
“Letting up” doesn’t mean abandoning the principles that are bringing you success. It just means re-evaluating them and figuring out new ones that give you the freedom to enjoy life today and the structure to enjoy life tomorrow.