Should You Budget To Spend, Not Just Save?
Written by
Jake Safane
Edited by
Nicholas Morine
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While many people start budgeting with the best of intentions, too often, they often fall off track. In fact, nearly three-quarters of American adults have a budget, yet among those, 84% say they sometimes go over budget, according to a NerdWallet survey.
Perhaps part of the problem is that people often feel constrained by their budgets. Trying to save money by not spending above a certain amount might sound good in theory — but in practicality, it’s hard to tell yourself “no” over and over again when confronted with spending opportunities.
“Budgets are a restrictive approach to saving money that cause many people to feel guilty about their spending, which isn’t sustainable,” said Jesse Mecham, founder of YNAB, a personal cash flow management app.
One alternative is to designate money for spending, not just saving.
Ramit Sethi, author of “I Will Teach You to Be Rich,” advocates for what he calls conscious spending. This involves a forward-looking approach to using your money, rather than reviewing your past purchases to see if you went over or under budget. His Conscious Spending Plan involves allocating your monthly take-home pay into different buckets — buckets designated for your fixed costs, investments, savings and guilt-free spending.
Notice that you can still set money aside for savings with this type of plan, but instead of seeing what you’re left with at the end of every month, you can designate an amount ahead of time, while then having a clear sum that you can use for spending however you want.
Being Intentional With Your Money
Making this shift toward budgeting to spend is about being more intentional with how you use your money.
“If you want to meet your savings goals, what you really need are new habits that will help you make more informed decisions so that you can save and spend without guilt. Start by asking yourself, ‘How do I want to spend my money?’ and then commit to building spending habits that support those priorities,” said Mecham.
Suppose you earn $5,000 per month after taxes. In a more restrictive form of budgeting, you might tell yourself that you’re going to save $500 that month and then go through the next few weeks debating different purchases so that you don’t use up all of your paycheck. But that can get exhausting — and you might end up going over budget anyway if, say, you forget to factor in a car insurance payment that’s due that month.
In contrast, if you budgeted to spend money, you could look at your fixed costs like rent and insurance. And if you follow Sethi’s Conscious Spending Plan, you would add 15% to your fixed costs to help catch what you forgot to plan for. You could then designate the remaining amounts into spending and savings categories. Perhaps that leaves you with $500 to save and $1,000 to spend guilt-free.
In this scenario, the $500 savings goal remains, but there can be a shift in your mentality that makes it easier to stick to that number. Knowing that you can go out and spend $1,000 that month, instead of backing your way into saving $500 through trying to cut costs, can make it easier to enjoy your money while not losing track of your goals.
That said, make sure you actually have that $1,000 — or whatever amount works for you — to spend without guilt.
“The biggest pitfall I see with budgeting is that most use forecasted income, which can cause you to lose clarity and spend with uncertainty,” said Mecham. “The more you can get in the habit of working with money you have right now and giving every dollar a job, you’ll start making better spending decisions, become more savvy at anticipating future needs, build a buffer with your money, and most importantly — spend confidently.”
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