Life is too short. This is what we tell ourselves when indulging in some non-essential spend, like dinner out with friends. And for the most part, we’re good with this response because life is too short.
We just have to be careful not to go overboard. We can’t allow a response of life is too short become an everyday justification to spend freely. Just like we can’t allow our race to achieve financial freedom block us from living for today
Yes, we are 100% committed to achieving financial freedom as soon as possible. But we are also 100% committed to enjoying life in the here and now.
The key is to manage finances in moderation.
Guiding Principles for Financial Moderation
Here are 2 guiding principles to achieve financial moderation – save for tomorrow AND spend for today.
Principle #1 – Save More Than You Spend to Grow Wealth
This principle ensures you maintain a relentless focus on saving and investing.
Principle #2 – Spend More On This Than That to Grow Happiness
This principle ensures you align spending with your values and what brings you happiness.
In last week’s post I discussed Principle #1 and the importance of saving more than you spend to grow wealth. While this guidepost is simple to say, it isn’t as easy to implement. But a focus on earning more money can be a great way to right size your save-to-spend ratio.
This week I’m sharing how to counterbalance Principle #1 and manage your finances in moderation by implementing Principle #2 – spending for today to grow your happiness.
Spend for Today with Purpose
Over the past few years we’ve been relentless in our mission to right size our save-to-spend ratio. We pay close attention to how much money we are saving for tomorrow.
However, we haven’t paid as much attention to what we spend our money on. At least not until recently.
Sure, I ran monthly reports to gauge how much we were spending on “high risk” items like clothes (my temptation) and shoes (E’s temptation), but the bigger priority was to manage to an overall spend target.
Yet, going back to the notion that life is too short, why wouldn’t you be just as purposeful in spending for today as you are in saving for tomorrow? And align how you spend for today with what matters most.
Here are 3 steps to spend for today with purpose…
Step 1 – What Matters Most?
The question to start with is what matters most to you? What brings you the most joy and happiness for the longest period of time?
What matters most to us is new experiences.
Buying things – like a new outfit for work or a rug for our home – brings me joy. But for the most part, that joy is short lived.
However, buying airlines tickets for an autumn trip to Vermont to see the changing leaves brings me even greater joy. And that kind of joy lasts much, much longer. Joy before the trip as we plan what we’ll do during our trip. Joy during the trip as we experience a new place. Joy after the trip as we reminisce about our trip in the years to come.
Net-net – we gain the most lasting joy from new experiences. Apply this to Principle #2 (spend more on this than that) and it means we: Spend More on Experiences than Things.
Now, what matters most to us may not matter at all to you. Here’s some examples of how spend more on this than that can play out differently based on what matters most to you.
If you gain the most lasting joy from…
- Cooking, then spend more on GROCERIES than other things.
- Golfing, then spend more on TEE TIMES than other things.
- Coding, then spend more on TECHNOLOGY than other things.
- Exploring, then spend more on TRAVEL than other things.
- Learning, then spend more on EDUCATION than other things
Step 2 – Define & Refine This and That
As we honed in on the idea that we wanted to spend more on experiences (this) than things (that), our next step was to clarify what to include as spending for each category.
At a high level, this meant excluding essential spending from either category, and then defining how to split out non-essential spending between our two categories of experiences and things.
Based on a scan of our Quicken expense categories, here is what we came up with…
Once you are clear on what to include and exclude in your unique categories – it’s time to right size your ratio.
Step 3 – Right Size the Ratio
There are a three tactics we use to ensure we spend more on experiences than things. And we leverage Quicken to run related reports to keep us on track. (I’ll share more on the benefits of using a tool like Quicken to manage finances in a future post!)
Plan Yearly: Since travel is one of the experiences that brings us the most lasting joy, we earmark a target amount each January to spend on vacations. And it is a healthy amount – much higher than our things budget. This sets us up from the get-go to be purposeful in aligning spending to what matters most to us.
Monitor Monthly: Rather than just running reports to measure our overall spending vs savings, we also run a report to track how much we spend on experiences vs things. We run these reports monthly to gauge how we’re doing – paying attention to how much of our non-essential spend is going toward experiences vs things.
Measure Annually: While we monitor our experiences-to-things spend ratio monthly, we measure our success annually. Some months our ratio is out of whack, like when we need to pay for household repairs, but then we can course correct the following months and keep us on track for the full year.
Life is Too Short – Spend for Today
For those of us racing to financial freedom, don’t just focus on the promise of the future. Be just as purposeful in spending for today as you are in saving for tomorrow. And align how you spend for today with what matters most and brings joy and happiness!
Remember, life is too short.