Avoid Budget Busters by Curbing Your Worst Impulses

The following is a guest post from Marotta Wealth Management.

Frugality is the new status symbol, or at least it ought to be. It is green. It is compassionate. And it brings with it a financial margin for when life colors outside the lines. It helps bring us the priceless gift of serenity and contentment.

Bruce Waltke translates Proverbs 10:4 as "A poor person is made with a slack palm." To be wise financially, our hands must remain steady. Extend your hand toward an impulse purchase and with one weak flick of your credit card, all thoughtful budget planning can be hopelessly broken. And for many families, it's once on the charge, forever on the card. Excess spending slows our accumulation of capital to invest. When we are drowning in excess purchases, getting ahead is like trying to sprint through deep water.

Get control of the spending that breaks the bank. Certain purchases that are typically both unnecessary and unplanned are budget busters. Avoiding these financial slips requires hedging some of our worst impulses and constraining our desire for instant gratification. Only by saving enough in discretionary spending can we afford to put 10% of our budget toward those true and unavoidable emergencies.

Here are three rules that will help you and your spouse limit impulse buying and better align your spending with your thoughtful values.

First, limit the dollar amount you can spend unless you and your spouse both agree. You owe it to your partner not to undo months of frugality and sacrifice by acting on a whim. Honoring each other in this way helps avoid resentment and alienation that can bust your marriage as well as your budget.

Negotiate the dollar amount. I suggest setting a limit of 1% of your monthly budget. If your annual spending is $60,000 and your monthly budget is $5,000, you would need to confer on any purchase over $50.

The idea of setting a limit will seem more acceptable if you consider the millionaire mindset. Millionaires recognize that saving and investing just $100 a month over the course of your working career produces a million dollars at retirement. They watch their spending carefully. They recognize that frugality is just another way to describe deferred consumption, which is the definition of capital. And capital, once invested, is what produces an ongoing income stream.

Put another way, if the average budget should include 5% taxable savings each month, every time you mindlessly spend over 1% of your budget, you lose more than a fifth of what you should be saving and investing outside of retirement accounts. I've seen many financial affairs ruined by the repeated spending of amounts much less than $50 at a time.

If you are struggling financially and having trouble agreeing on your goals, you may want to set the limit lower. As you both begin to feel your spending is under control and your savings exceeds your targets, you can readjust the limit higher. Exceptions can be made for regular bills and necessary purchases such as utilities and groceries.

Talking with someone else about a possible purchase can clarify your thinking not just about the item but also about your other competing financial priorities. It changes the question from "Do I want to buy that?" to "What do I want to give up to buy that?"

The second rule limits the frequency of mistakes. Practically speaking, you can learn to postpone spending one purchase at a time. When our children were very young, they had to wait a week before spending money on a toy. After the seven days, they often wanted a different toy instead. Then they had to postpone the purchase again.

Children should be required to wait as many days as they are years old before being allowed to make a large purchase (that is, more than a week's allowance). You can use the same technique to strengthen your own slack palm.

When you're tempted to buy something, wait a week before acting. If you still aren't sure, wait another week. There is always tomorrow, and most of the time you won't remember what attracted you to it in the first place. Simply learning to delay and avoid impulse buying can cut your spending in half.

My wife and I sometimes wait years to be sure a purchase will further rather than impede our goals. The rule is simple. If you are not sure of a purchase, wait another week. This ensures that your hand will be confident, not slack, when it decides to act.

The goal isn't to be rich but instead to be thoughtful, industrious, content and thrifty. If you struggle with Madison Avenue's mantra of personal fulfillment through excessive spending, turn the image around. Nearly all of our spending is discretionary, and every spending delay can be a way to bring peace into your life.

The third rule is to recognize the categories where you make mistakes. Dieting works because you are forced to observe what you are eating and learn which foods tempt you to break your calorie budget. Creating a financial diet works similarly. It creates a system that makes spending money more painful. Simply keeping track of all your purchases in a small spiral notebook makes you more mindful.

Refrain from discretionary spending in any budget category that is under pressure. It might be eating out. It might be clothes. It might be household items. If you keep your budget in mind, it will help you not to spend more money than you intended.

Whatever your lifestyle, you probably think everything would be just fine if you had $10,000 more a year. That is the deceptive seduction of wealth. We don't realize there are people living off $10,000 less than we have who are saying the exact same thing.

Ask yourself, "What will I do when I run out of money?" Whatever you would do then, you should do now to keep your spending under control and live within your means. The best way to learn to be content is by taking money out of our spending categories and saving it. The less we spend, the better we will learn to be satisfied. Just as the harder we train, the better our endurance.

If you must satisfy frivolous spending, limit the amount and budget for it. Set aside a half of a percent each for husband and wife. For a family with a budget of $60,000 a year, this would be $25 a month each. If you wanted to buy a $300 item, you might have to save up for it for an entire year. But only put this in the budget if you are saving adequately for all your other big goals.

An even better way is to lovingly meet each other's desires through the portion of the budget allocated to giving gifts. Too often family members don't know what to purchase. Consequently, unwanted or inappropriate gifts represent a great deadweight loss of value. But when we leave our desires in the hands of others by offering, say, a gift certificate we can afford, we build family bonds rather than resentments.

In summary, to avoid impulse buying, set limits, wait a week, and watch out for those categories that entice you to break your budget. And when you must spend frivolously, limit those purchases to a small fraction of your budget.

Comments

[Learn Save Invest]

My worst impulse is fast food. I work at a job where I'm required to drive around town all day, and I don't get a chance to stop of at the office much. This means I need to eat on the road, and I just can't seem to stay away from the fast food. It adds up after a while too! If you figured 6 bucks a day for lunch, that's a lot of money at the end of the year. Hopefully I can curb this soon.
Thanks for the post, I liked it a lot.

[JM]

Our monthly budget is way below $5,000, and I definitely don't want to ask my spouse about any purchases $20+. That figure is way too low. Otherwise it was a good article.

[jim]

Good article. I agree on all points. My wife and I set a limit of $100 for purchases before we have to talk and agree. It was kind of an arbitrary choice that just seemed right. I've personally used the tactic of delaying purchases and it helps me from continually buying the next gadget I desire.

[KH]

Great advice! I particularly like the advice about waiting before buying.

Since I'm a single parent, I can't rely on another person to keep my spending in check.

Instead, I use a really tight budget and automatic bank transfers that dump all of my paycheck into savings except for what we absolutely require to live through the month.

So to buy anything extra, I have to deliberately take the $ out of savings. This setup makes me stop and think before spending as much as $100, and also takes time before I can spend it, both of which are helpful in keeping me from spending unnecessarily.

[Budgeting in the Fun Stuff]

I liked the reminder to wait a week before making a big purchase.

My husband and I pretty much talk about all our purchases in passing since I make sure that we are the only ones using our credit card, but we rarely make ourselves wait a week before buying things we want with our "fun" money. Good idea.

[Old Limey]

The worst impulse spending that I have seen by others is that they often foolishly think that by buying some item that everyone recognizes is "the best", "the most attention getting", "the most expensive brand" or "the most image enhancing", that people that know them will have a much higher opinion of them, i.e. it's a big ego booster that they seem to need.

Instead it really has the opposite effect completely, many people think "how foolish", "who are they trying to impress", "they must have a low self image" etc., etc.

Once you understand this and you are happy in your own skin you realize that you don't have to impress anyone, and how much more satisfaction and pleasure you can get by making a really smart buy and obtaining a great bargain. I grew up in a working class family in England during WWII, then after 50+ years in the USA found myself quite wealthy, but get a great kick out of finding an incredible bargain sometimes on eBay when nobody outbids me. Today for example a shirt arrived in the mail, it retails for about $125 in the best department stores, it was as new, fits perfectly, just dry cleaned, and cost $9.99. My 49 year old daughter (with a $2.25M investment portfolio) was showing me some books today that she bought at a Thrift store for about $1 each. They were all out of print and will sell on amazon.com for between $25 and $45, sometimes even more. My other daughter (with an IRA over $1.5M) is now a stay at home Mom with two recently adopted babies, telecommutes to her old job 250 miles away, and also makes a lot by selling items on eBay that she picks up at Thrift stores. I'm very proud of them both even though they both sometimes spend money more freely than I do. People have kidded me that when I open my wallet the moths fly out!

[BibleDebt]

Thank you for the suggestion on having your kids wait a number of days equal to their age. That seems like a reasonable thing to ask and teaches them patience, while delaying pleasure. Often, like you said, they will decide they really didn't want that thing they would have purchased on a whim.

[Johnson]

You might want to recheck your site policies
The same article is already posted on this company's own website

[FMF]

Johnson --

I know. Marotta writes syndicated columns for newspapers and websites. He sends me an article every week, and if I like it, I run it. He also posts the same piece on his site.

[myfinancialobjectives]

Great insight and I like reading about your personal examples. However the numbers seem a little off, such as consulting for something over $25.00.

[Josh Stein]

It depends. For some people, $25 is a totally negligble amount. For me and my wife, in the financial position we're in with two kids, $25 is a pretty reasonable line, and it's the one where we do discuss with one-another something.

[Patrick]

I've put off a couple of big purchases recently, forcing myself to do more research, then research again. Twice I came to the conclusion after a few weeks that my money would be better spent elsewhere. There are a few times that I haven't done that and really should have.

[mysticaltyger]

This is a good post, but the problem I have with these kids of posts is they assume people are retional, when most of us aren't. In fact, I think it's fair to say no one is completely rational with their money all the time.

Posts like this fail to recognize people overspend for emotional reasons. People who grew up poorer relative to their peers tend to overspend in adulthood as a way of making up for that.

Obviously, moving toward financial discipline requires overspenders to move outside their comfort zones. But that is easier when the emotional motivations behind the overspending are understood.