2-03: Spending With Intention
For many of us, the decisions we make about what to spend our money on are our most direct participation in the world of finance. Control over what we buy can sometimes feel like the only control we have, even if that control is limited by how much income we have and what the basic necessities of life cost.
Why is this important?
Learning how to spend with intention and within our limits is an essential tool in our disaster-preparedness kit. It can be an intimidating and frustrating skill to learn, especially when we have no room for error and one emergency can throw all our hard work out the window. It takes practice, repetition, and patience with yourself if you fail.
The best time to learn this skill is when we don’t think we need to.
Just like we drink water, build muscle, and eat fruits and vegetables when we’re healthy to avoid dehydration, bone density loss, and scurvy, we control our spending when money is good. Sometimes it prevents bad things from happening, but even when it can’t, knowing how to spend with intention can make dealing with whatever comes our way easier to recover from.
Here’s the other reason having a solid grasp on our spending is a skill we should cultivate: we don’t need all the stuff we spend money on. We have lived our entire lives in a culture of “more is better” and “growth drives the economy”, but our entire planet is dying.
Creating a new culture of sufficiency and a new economy of degrowth can start with our wallets (but of course it can’t end there…there’s an entire paradigm of orthodox economic thought that has to die).
The practice of controlling how much we spend, and on what, can shift our worldview toward collective wealth while it changes our individual relationship with money. What’s not to love?
Okay. How?
So that’s the why. Now for the how.
Before you can control what you spend, you need to know what your limits are. This means that you have to sit down with the amount of money that you get every month from every source. If you have a small business, or you earn different amounts on every paycheque, this part is harder for you. Start with the highest amount you feel safe to count on.
Then, you gather up all of the expenses that don’t change much from month to month: your rent or mortgage, insurance, loan payments, your gym membership, automatic contributions to your savings, and subscriptions.
Then, you estimate how much you need to spend every week on things like transit passes, gas, groceries, and fun.
What’s left over? That’s what you’ve got to build up an emergency fund, buy clothes, celebrate birthdays and holidays, take your dog to the vet, and travel. These are the things you save up for every month but spend on once or twice a year.
My friend Chris Enns has some excellent tools for this, as does my friend Shannon Lee Simmons. I’ve included these in the resources section for this episode.
Sometimes, after you go through the whole list of things, you realize there’s not actually enough for everything, and you have to make adjustments. These adjustments are easy to make on paper and hard to make in real life…which is the whole reason we’re doing this episode.
Backward or forward looking?
There are two basic ways to control your spending. One is backward looking and relies on data, and the other is forward looking and relies on friction. Both ways require some upfront work and some ongoing work. Some people start with one and move to the other. Some people do both (I did, for many years).
The backward looking, data-driven method requires you to track every dollar you spend.
You can use your financial institution’s built-in dashboard, if they offer one, an app, or a spreadsheet. We talked about how and to do this in season one, so go back and listen to episode four if you need a refresher. You’ll need to keep your tracking current so you have good data to make spending decisions with.
The forward looking, friction-based method requires you to set up spending accounts and transfer the actual dollars you want to spend to them. No math or tracking is required, since the balance in the account tells you what’s available to spend at any given moment.
If you want to spend more than you’ve got, you have to stop for a minute and decide where you’re going to take the money from, and that moment of friction gives you time to think twice before spending.
Both methods require you to plan ahead and be ready to adjust those plans as you go.
If you gave yourself $200 a week for gas, you need to know how much you’ve spent so far and how much you have left to spend. You have to plan your driving in advance, otherwise you might find yourself with a long drive on the calendar but a short drive in the budget.
If that trip is non-negotiable, or last minute, or the price of gas goes through the roof (again), you have to get the money from somewhere else that is negotiable. Is there an expense you can delay? Something you can give up?
By the way, this is the skill you’re practicing. The personal understanding of being able to tell the difference between what you need and what you want and making the hard decisions when you can’t have both.