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Spending Rules

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We recently had an online seminar highlighting spending tips for higher income households.  You can see the recording here.  Here is a brief summary if you’re interested but don’t have time to watch the full presentation:

  • Paying bills, paying off your credit card each month and keeping your bank accounts in the black is necessary but not sufficient to properly manage your finances as your income rises.  A sense of abundance is usually good, but most people need a slight sense of scarcity in their personal accounts to effectively manage spending.  Consider keeping a checking account as your “operating account” with a balance low enough that you have to at least momentarily consider each purchase throughout the month.
  • To create abundance, consider greenlighting certain spending guilt free.  Examples include a healthier lunch spot you like, unavoidable bills like utilities, and consumables like household staples, toiletries or makeup that you actually have used up.  Some families find that rather than attacking their grocery budget, greenlighting grocery store spending itself can be helpful compared to expensive dining out, takeout and delivery.
  • Commit to periodic household spending reviews with all stakeholders.  This is a time to actually look at Mint, YNAB, Personal Capital, or whatever other tools you might use to track your spending.  Just the act of reviewing spending periodically can improve your behavior even without a more specific plan.
  • Manage your credit cards.  Studies have shown that you spend more with credit cards compared to non-credit alternatives even if you pay off your cards each month and don’t carry a balance.  Try it for yourself- use a debit card with a balance low enough that you have to pay attentionfor a month and see how much less you spend.
  • No spend periods are an interesting way to reset your spending mindset.  When I ran my transactions for last year there was only one day without a card swipe or online charge- December 25th.  Can you go a day, a week, or a month with no discretionary spending?  You can easily find online groups attempting to make it a year- or more.  While they seem extreme, even a brief no-spend can be a good way to reset your mindset.
  • Closets can easily get out of control.  Try moving things to one side of the closet or front of the drawer after each wear.  In a few months you’ll clearly see what gets worn and what doesn’t.  Do a purge to a reasonable wardrobe footprint with items you actually use and then consider a net zero approach- old clothes have to go for each new clothing item brought in.  Consider a no buy period for clothes if the size of the wardrobe is an issue for you.
  • Amazon allows you to see all purchases since 1995.  Look back to when you started using amazon in earnest and scroll through the purchases from years ago.  How much of the stuff is still in use today?  How much was worth the money?  How much would you buy over again today?  What will your future self think about this year’s purchase history?
  • Are you in the warehousing business?  We make fun of Arab princes who have warehouses full of sports cars, but we do the same thing on a smaller scale.  Do you pay for a storage unit?  Do you have bedrooms, garages, or outbuildings full of stuff?  How much of your belongings have been touched in the last year?  Is your big house for you or for your seldom-used belongings?

If you’re the kind of person who wants to right-size your spending, hopefully these tips can be useful for you.  This topic is far too broad to fully address in 500 words, or even an hour presentation.  Let us know if this or any other types of content would be useful to you on the path to your secure financial future.

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