The Paradox of Saving Money: Use Your Own Spending Psychology to Save More
If you want to save for unexpected rainy days, that’s perfect. But if you’re not good at saving, start with purposeful spending. Once this habit is built, saving more over time will be easier.
Most of us are natural spenders and poor savers. Companies target us with ads, and credit card companies incentivize us to spend with perks. We are constantly bombarded by hundreds of ads daily, making it easy to justify impulsive purchases. It’s hard for our money to grow; we often spend more than we make.
We commit to saving more money, but we don’t always know for what purpose, so we impulsively spend or lose track of how much we’re spending, dipping into savings for things that aren’t important.
We end up spending our savings on everything but the big goals we’ve set for ourselves, like a house, a car, or that vacation we’ve been dreaming of.
When we say, “My goal is to save $10,000,” without a clear purpose, our brain looks for ways to spend it because, at its core, money is for spending, right?
Instead of spending your future now, fund it first.
Many of our so-called “unexpected” expenses don’t come out of the blue. We knew we were going to take that trip, buy that car, or pay that credit card bill. They only feel unexpected because we chose to ignore them, hoping things will magically work out.
It’s not that budgets don’t work—it’s that budgeting depends on our ability to stick to it. Your finances are too important to manage with wishful thinking.
The main purpose of a budget is to help you make better decisions, not just track numbers. You want to control your spending in a way that gives you freedom after you’ve taken care of what matters most.
Step-by-Step Plan for Paying Your Dues First, Then Spending Freely
- Identify Your Essential Dues:
- List your non-negotiables. These are the things that must get paid every month: rent/mortgage, bills, groceries, utilities, loan repayments, and credit card debt. Also, consider long-term goals like investing, vacation savings, or saving for a future car.
- Automate these payments. Ensure your essential dues are automated so you never miss a payment or use the money for something else.
2. Create a “Future Fund”:
- Set aside money each month for bigger goals like vacations, a car, or long-term investments. This prevents you from dipping into that pool for daily expenses.
- For example, if you want to go on a vacation in 12 months and expect it to cost $2,000, start putting $167 a month into a dedicated vacation savings account. This helps you stay on track without sacrificing future plans.
- Every time you receive income, allocate a portion directly into savings and investments before spending anything else. This way, you know you’ve already “paid your future” before using money for anything else.
3. Set Up Savings for Debt and Emergencies:
- Before allowing yourself to spend freely, prioritize saving for debt repayment and building an emergency fund. Ideally, aim to cover at least 3-6 months of living expenses in case something unexpected happens. Once your emergency fund is secure, more money can go toward your fun spending.
4. Track and Adjust Your Fun Budget:
- Once your essentials and future savings are covered, you can determine how much is left for guilt-free spending. If you’re finding there’s little left for fun, reassess your expenses and see where you can cut back.
- For example, if after paying all dues you have $300 left, that’s your budget for things like dining out, entertainment, or hobbies—no guilt, because you’ve already been responsible with your money.
5. Plan for the “Unexpected”:
- Many of the so-called “unexpected expenses” aren’t a surprise if you plan for them. Set aside small amounts monthly for expenses like car maintenance, home repairs, or medical costs. For instance, putting away $50 a month into a maintenance fund ensures you’re not caught off guard when these expenses pop up.
6. Allow Yourself to Enjoy What’s Left:
- After you’ve paid all your bills, contributed to savings, and planned for future expenses, allow yourself to spend the rest freely. Knowing you’ve been responsible first makes this spending feel guilt-free and enjoyable.
- If you’ve done all the above and find you have $100 left for the month, you can confidently spend that on whatever brings you joy without worrying about derailing your financial plans.
7. Check in Monthly:
- At the end of each month, review your spending and savings habits. Are you sticking to the plan? Did you overspend in any category? Adjust as needed, but always make sure the essentials are covered first.
By paying your dues first—rent, bills, savings, and investments—you can confidently enjoy the money left over for fun. This gives you the freedom to spend without guilt, knowing you’ve taken care of your future first.
