“Should I feel guilty when spending money?” It’s a common question when I consult with clients. They are so tuned into frugality they sometimes start associating negative feelings with money. It’s a bad thing to start feeling.
Spending money is NOT an evil activity! In modern society we have it so easy that we tend to either overspend (the vast majority) or become hyper-frugal (a significant percentage of the demographic reading this blog). Both lifestyles are unhealthy. Overspending leads to serious problems when the bills come due and income might not keep up. Debt is a serious issue I ask clients (and readers) to consider purging. The opposite of overspending is the hyper-frugal drive. This can suck the pleasure out of life as fast as a heavy debt burden.
I tend toward the frugal side of the equation and get called out on it periodically, too. Sometimes I do things just because it’s the cheaper choice. If I were as smart as I think I am I would reconsider such decision-making. Frugal isn’t always the best answer.
Frugality for me is more about my hate for shopping. When I spend I know exactly what I want and side purchases are never a distraction.
Buying a good or service feels good even for a frugal accountant like me. I needed a longer breaker bar (torque bar) to get the lug nuts off a tractor tire so I can take it in for repair. The breaker bar I have is only 14 inches; the one I bought is 30. By the time you read this I might have that tire off with my new piece of equipment. Yes, I’ll save money on a service call by getting the tire to the shop, but it still feels kind of good knowing I have a shiny new tool in the garage.
But spending is a problem for many people. Frugality is a forced habit at best for the majority. Economically enforced austerity gives way to bad spending habits when normalcy returns. The cycle is familiar and we know it while we do it. If only we could stop.
Since most people enjoy spending money I thought I’d share 5 ways you should spend because this kind of spending makes you richer. In fact, if you don’t adopt these spending habits I outline below you will suffer serious personal finance issues. Those who have money will realize they were already spending this way. For the rest of you, please come along. I’m going to show how you will want to spend that money burning a hole in your pocket.
This may sound like common sense, but too many people defer spending to their detriment. Every so often you should change the oil in the car. It runs better and lasts longer when you do. When the roof needs replacement frugality is not your friend. The structural damage follows shortly after and gets very expensive. Then you get to spend a lot of money for no additional value. That is not a good spending habit.
Do-it-yourself (DIY) projects are a good opportunity to spend. One of the cables broke on my garage door recently. I bought new cables and discovered I didn’t have tools or the recommended bars to loosen and tighten the spring. I broke down a bought a pair (you need two) to finish the job. Now I need to keep them safe for a distant future event when I need to work on a garage door again. The cost was only $15, but it is spending. The spending saved me the cost of a service call which would have been significantly more. Some spending is good spending and increases your wealth.
The same situation occurred at the office this summer when I wanted to do some light landscaping. The place really needed it. Clients have a better opinion of an establishment with appealing décor. I acquired several quotes which all came in over $10,000. (And it wasn’t that big of a job!) I decided to do the job in-house. The cost of dirt and river rock and some seed money for some extra helping hands was under $2,000. I have several huge rolls of felt in the barn I used and unused treated fence posts from a previous farm project so that cost nothing extra. In the end I spent a couple thousand, assuaging my spending itch, and created over $10,000 in value; more if you count the added business an attractive building can bring in.
Maintenance and DIY projects are a perfect way to spend money in a way that creates value. If I would have written a check for $10,000 to landscape the office it wouldn’t have felt as good. I got the satisfaction of a job well done and the opportunity to order 10 yards of top soil and two orders of river rock. There were multiple spending opportunities for the same job. For people with an itch to spend, this might be a good way to kill two birds with one stone.
Pay Down Debt
I’ve preached this line often before. Loan payments are not completely new spending. The interest is, but it doesn’t feel like fun spending. You get nothing for the interest spending: no pretty baubles or service or vacation. Nothing. Your wealth just disappears.
The act of spending is addicting to many. Rather than spend on more stuff and putting it on the credit card at 18%, consider tricking your brain into spending the right way. Here is what I propose. Spending is about wanting something. Some people enjoy the shopping experience. Either way, turn these desires into a wealth creating machine. For the shopping addict, lay out all your debt and obsessively review your balances. Create an aggressive spending payoff habit. Set your payments up on automatic, but also send in extra whenever an extra nickel crosses your path. Turn it into a game! Have fun with this. Instead of building debt, turn debt elimination into an exciting adventure.
If shopping doesn’t trip your trigger then you probably spend just to have something new. I have something shiny and new you’re going to want: a debt free balance sheet! I mean it. Instead of a new boat, roll up your sleeves and butcher those bills. Remember, it is easier to enjoy a new toy when you don’t have to work to pay off the toy, plus interest.
Once you pay down debt you might be tempted to return to old habits which caused the financial problems. I say, “Nyet!”
The newfound habit you used to eliminate debt is a good behavior for proper future spending habits. Turn investing into an automatic wealth creating machine. Automating investing doesn’t always satisfy the itch to spend. There is a solution.
It may be hard to believe, but there was a time when I enjoyed spending a bit more than I tend to nowadays. Money was rolling in and times were good in the 1990s. I was smart enough to know good times don’t last forever so I devised a plan to satiate my spending desires with intelligent cash allocation.
Tax season was always a good time of year. My mutual funds were automated, but I needed a home for my excess cash so I wouldn’t be tempted to spend it. My solution: dividend re-investment plans (DRIPs). I wrote checks to all my DRIPs. It gave me great pleasure to finish my day with a spending splurge. I’d write a check to JNJ, Aflac, Phillip Morris, Wrigley (damn you, Warren) and more. As fast as it came in I sent it out. I don’t know what you spend your money on, but I have a nasty habit of buying as much stock as I can get my hands on. For the record, it’s a good habit to have.
DRIPs aren’t what they used to be. Brokerage accounts generally automate re-investment of dividends and many DRIPs now have fees. There is still a solution. Set a minimum amount you can easily invest every month. Automate the process. Then either write a check every time money comes in or log in and set up a transfer. Trust me, you’ll have so much fun spending on your index fund. The best part? Instead of paying interest on your purchase you’ll be paid dividends instead. Oh, the joy!
Turn investing into a game. Real wealth creation is built on the proper allocation of capital. The bank is fine for short-term and emergency funds. But your serious money needs to be working hard building a better world and the only way to do that is to own a piece of great businesses.
Another spending game to consider is investing funds you planned on spending foolishly. Excessive dining out or drinking in bars can be swapped out for an index fund investment. I’m not telling you to forgo a pleasurable life. God forbid! All I’m suggesting is that you switch some consumer spending for investment spending. And besides, you know as well as I you will enjoy those dividend checks more than interest payments.
If you have an itch to spend, income properties are for you. Many moons ago I owned a city of real estate in my portfolio. From personal experience I can attest you get plenty of spending opportunities when you own real estate.
Your primary residence is different from income property. Money you spend on your primary residence (or second home) comes from another source and can run dry. Income properties have—wait for it—their own income stream to fund expenses. If you have a serious spending itch, real estate done properly can scratch that itch raw.
You still need to buy properties right! Stupid income property purchases will force really bad spending even when you discover how bad the spending is and want to stop. Sometimes you can’t. But a small portfolio of investment property can give you plenty of opportunity to shop and buy. Researching the right property should be a priority. Once you own the property there are always things that need to be paid for: property taxes, utilities, insurance, repairs and maintenance. A property manager can do all this for you, but you can write the check yourself if you insist. Even still, you can review your monthly statement from the manger which will show all the spending. It should serve as a powerful ointment for your spending itch.
Small Business/Side Hustle
Okay, hustlers! Nothing beats spending opportunities than a small business or side gig. Even a frugal guy like me still manages many hundreds of thousands of dollars in annual spending just by owning a small accounting practice. Every two weeks payday comes around and I get ample reminders on how to spend my money.
A side gig or business is an easy way to alleviate the desire to spend. Maybe too easy. While I can brag I spend $250,000 in my business, it needs to be brought into perspective. I’ve seen too many people over the years start a business, spending like mad to get it up and running. It soon becomes apparent my client isn’t ever going to make a sale. He’s going to keep spending until he’s broke without ever actually starting the business. Then he asks if it’s deductible. (Not if it was a hobby or you treated it as such.)
Still, business owners are spending daily. At home my wallet has moths. At the office money is moving constantly. Office supplies are replenished, utilities are paid, property taxes come due, employees get paid, IT needs money. The list goes on and on. A frugal habit goes a long way toward profitability in a business. It’s easy to spend; not so easy to bring it in.
Spending/shopping addiction is a serious problem with many consequences. Shopping is a waste of time compared to time spent with family and friends. Shopping has its place as long as it doesn’t rise to addiction. Business has a natural built-in need to allocate money. If you can run a “real” business or side hustle you have my blessing. Before long you will lose that desire to spend. Take it from a three decade business owner. Spending gets old real fast when it becomes a job. (You know; a job. That thing you want to take early retirement from.)
Spending in and of itself is not wrong! Overspending is a bad habit and even a sickness. Excessive frugality is a bit of a sickness too. Careful readers may have noticed that from a certain unnamed accountant over the past few years.
I’m not here to tell you to never spend. What I want for you, kind readers, is a healthy relationship with money and spending. Reducing debt to background noise is important. Investing for your future and that of your family is imperative.
Spending easily becomes a job! Money is a powerful tool to help you live a quality life. Too much or too little is a problem. Using the 5 ways to spend listed above will make you wealthier. That is what we are about around here: quality of life which is the true meaning of wealth.
Finally, can you do me a favor? If you think this is as important as I do, go back to the top of this post and use the buttons to share on social media. You can pin the placards to Pinterest, as well. Help me spread the word. Let’s make the world a better place where people control their spending and build powerful, nurturing money habits.
More Wealth Building Resources
Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?
Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.
Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.
QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.
A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.
Worthy Financial offers a flat 5% on their investment. You can read my review here.
Friday 31st of August 2018
Peerstreet is a good investment app, have you tried Fundrise? Slightly more usable interface and offers similar returns. And I agree about the business and spending habits. It's been a while since I've spent money on anything other than business expenses. I find my business fun and exciting as playing video games themselves...but with a bit more stress involved. Still you can write-off expenses, you can't write off a Playstation 4. ;)
Monday 20th of August 2018
I understand that frugality is a valuable means to FI. But it appears to me that it can become an addiction, takes away one's focus on what's important in life, and how precious life is. Which leads to the question: when is enough enough?
If I'm worth $12M, and I can spend $100K a month, every month 'til the day I die, without ever running out of money, is a $10K saving for landscaping worth not spending time with my family? At which point do I switch from driving a clunker with a salvage title to a car or pickup that's comfortable, even if it costs me $30K? When will I allow my wife to get a great hairdo and a pedicure? Will I one day on my death bed wish I had only $48M in wealth, instead of $53M, but had used some time and money to see the world, as amazing as it is?
MMM propagates FI as a means to early retirement. You do not, I get it. There's no right or wrong here. But I really wonder what "good" an 8-figure net worth is if your life isn't different from when you were "just" a plain millionaire?
Monday 20th of August 2018
What a great article! I'm going to have to save this for later. I'm glad to see "Maintenance" at the top as I believe so many people forget this one. Maintaining big-ticket items can save so much money in the long run!
Monday 20th of August 2018
Great article. I like to invest so much it hurts. I'm 100% debt free, but I keep myself feeling broke on a monthly basis. I create the feeling of living "paycheck-to-paycheck", because I immediately put EVERYTHING extra into stock/investments.
Debt Free Dr.
Monday 20th of August 2018
I love this comment: "At home my wallet has moths"
You sound like my dad!
Question: Regarding #1 Maintenance - What would you say to the folks out there that reprimand us from DIY. They recommend that you should look at what you can make in an hour, and if it makes more sense to pay someone to do the job, then let them do it.
Ex: If you're going to pay someone $200 to weed and mulch flowerbeds (estimated 2 hours of labor), you be better off paying them if you can produce $500 in an hour x 2 hours = $1K
Monday 20th of August 2018
When it comes to DIY a man has gotta know his limitations (as Clint Eastwood said). The first rule of DIY is to make sure you are competent to do the task correctly. Second, you have to ask how much you will save. You can't compare it to what you'd make at your peak earnings potential because you probably will not trade that income producing activity while performing the DIY activity. For me, I enjoy a break from office work. Playing with my tractor or fixing the garage door (both simple tasks even an accountant can do) is a welcome diversion from regular work. Trading free time screwing around for a constructive DIY project can be fun, at least for me. Certain projects I'd never touch. Next year I'm having some window work done on the house. That is outside my pay grade so I'm calling in the troops. It also boils down to how much you enjoy doing the work. If you hate the process you might be better off hiring it done.