This post is going to be a little odd. Most personal finance writers write all kinds of articles motivating you and teaching you how to spend less money so you can save more and actually reach your financial goals. However, many of the people who actually read personal finance books, blogs, and magazines don’t have that problem. Personal finance is their hobby. They’re already highly motivated to save money. They generally start early, save a big chunk of their income, and do a great job investing. It’s a huge disconnect. The writers are writing for people who don’t read their stuff and the readers are reading stuff not written for them.
To make matters worse, a certain percentage of personal finance hobbyists not only end up with gobs of money, but they also have a certain amount of anxiety about money. This anxiety is readily identified in others, but difficult to see in ourselves and is manifested in many ways. Perhaps it shows up in an ultra-low withdrawal rate, like 2-2.5%. Or recommending others save 50%+ of their income. Maybe it shows up as a difficulty transitioning from saving to spending. Or maybe just an unwillingness to spend money on something that will obviously make your life easier and happier. So if you’re one of those who needs to loosen the purse strings a bit, this post is for you. (By the way, if someone forwarded this post to you, you probably need to consider loosening those purse strings up!) And lest you think I’m criticizing you, bear in mind I write this sort of a post for myself just as much as for you!
Here We Go… 8 Ways to Spend More Money
# 1 Support Your Favorite Charitable Cause
There are thousands of charities out there doing incredible work. The likelihood of you not being able to find one whose mission you agree with seems awfully low. WCI readers support hundreds of different charities. Giving to charity has two benefits- first it helps the charity and those who it helps, but second, it helps you. There is a psychological effect of giving some of your hard-earned money away voluntarily (sorry, taxes don’t count.) It sends your subconscious a message–“You have enough, quit worrying about running out of money.”
# 2 Recognize Your Mortality
Some who struggle to spend do so out of a fear, conscious or subconscious, of running out of money. Sometimes we need to step back for a moment and recognize the law of averages. While you may have a chance of living to 105, you’ll probably die at 85. It can be helpful to remember that. As you realize your time on this planet is likely to be shorter than most safe withdrawal rate studies might suggest, perhaps it will be easier for you to get out and start ticking off those bucket list items before it is too late. I’m only in my 40s but I’ve already got a bucket list that is at least two lifetimes long.
# 3 Give Yourself Permission to Spend
That fear of running out of money can be very powerful. The financial technique that is most likely to allow you to accumulate (and thus leave behind) the maximum amount of money is to keep the money invested in aggressive investments like stocks and real estate throughout your life. Although they do get a step-up in basis at death, those risky assets can always go down in value, sometimes severely. That fear of loss (and thus running out of money) keeps a lot of people from spending as much as they could.
There are a number of financial products out there that give you “permission to spend.” The most useful of these is a single premium immediate annuity (SPIA), where you give an insurance company a lump sum of money in exchange for a monthly payment every month from now until your death. However, if you not only want to ensure you don’t run out of money, but also ensure you leave a certain amount of money behind to your heirs or a charity, a permanent life insurance policy can be very useful, particularly inside an irrevocable life insurance trust (ILIT) if you have an estate tax problem. If you want to leave a guaranteed nominal amount of money, a guaranteed universal life (GUL) policy is best. If you want the amount left behind to slowly grow as the years go by, a whole life policy is probably better, although the premiums may be twice as high.
# 4 Save For Someone Else
Love to save but already have enough to meet your own financial goals? You can save for someone else too. You can save for your kid’s college using a 529 account. If you’re married, you can contribute $140K per kid in one fell swoop. You can save for your kid’s future cars, down payments, marriage, European vacation, or anything else in an UGMA/UTMA account (think taxable account for kids.) If your kids have earned income, you can put it in a Roth IRA. If they don’t want to save their money, let them spend an equal amount of yours (the daddy match) and put theirs in the Roth IRA. This doesn’t even have to stop once they turn 18. You can let them spend your money while contributing their own earnings to a 401(k).
If your underage kids don’t have earned income, you can save for their retirement in a low-cost variable annuity. Over multiple decades, the tax-protected growth in the annuity will overcome the higher costs (and ordinary income tax rates at withdrawal) of the annuity. Are your kids set too (or do you already have enough set aside for them that you’re afraid any more will ruin them?) You can start saving for others too. Start a 529 for your nephew. Or your grandkids. Or the neighbor kid (if you can talk his parents into giving you his birthday and Social Security number.)
# 5 Buy Time
You may have far more money than you need, but you have another resource that will always be limited-your time. The larger your money to time ratio is, the more you should be willing to spend in order to buy more time. That may mean money spent on exercise, good food, and healthcare. But there are other ways to exchange money for time. Hire someone to clean your house or mow your lawn or manage your portfolio. Fly instead of drive. Cut back to half-time or retire early. Pay a partner to take your call. Refer away work you don’t want to do. The more you look, the more opportunities you will find to purchase time with money.
# 6 Take Up an Expensive Hobby
A great income, a little fortune, and some discipline are likely to result in many readers of this site being in a higher socioeconomic class than they grew up in. That means you can do some things you couldn’t afford to do as a kid. Maybe it is international travel. Maybe it is boating, snowmobiling, or 4-wheeling. Polo anyone? There are a lot of fun things to do out there that aren’t particularly cheap. Why not find one or two that you think you might enjoy?
# 7 Send Someone On a Dream Trip
Have enough money to do everything you want to do? I bet you know someone who doesn’t. Ask a less well-to-do family member sometime about what they would do if they had more money; you might be surprised how affordable it is to you to give them their dream trip. Happy Birthday!
# 8 Recognize Wise Spending Takes Effort
Good savers tend to automate their financial life, but that works a lot better for saving than it does for spending. The wealthy often find that it takes just as much effort to spend or give away money in a wise manner as it does to earn and invest it. Don’t expect it to be easy. It takes work. You’ve got to really analyze yourself and figure out what will make you happier. Upgrading your 2016 Lexus (or Mastercraft) to a 2017 model probably isn’t going to increase your happiness much. Nor is moving to a larger house when you already live in a “doctor house.” While those things would increase your spending, they wouldn’t increase your happiness, which is the real point. That’s going to take a little more work. But remember this- either fly first class or your heirs will! As my mother told me after taking her 31 member extended family on a cruise, “I figured you guys would be spending this money eventually so I thought I’d just arrange to be there when you did!”
What do you think? Is it hard for you to spend? Do you think it will be eventually? What do you do in order to keep yourself from becoming miserly? Comment below!
Great post, WCI! Like you said, not the typical post you’d read on financial websites!
I think being “moderately frugal,” as I call it, is a good thing as long as the spending is intentional to produce joy and wellness. I think your last point is the key point. Just because you can spend money on something doesn’t mean you should! BUT if the happiness to cost ratio is high, then go for it! The goal is to spend money on things that bring you joy. Loosening the purse strings to allow for intentional spending is a good thing.
This is exactly where I am coming from with my website. Thanks for the thoughtful ideas on not only how to spend money, but how to spend it intentionally.
TPP
A lot of the people who worry about SWR less than 4% are those seeking early retirement who actually might be in retirement for 50-60 years. For the typical retiree, it makes sense to stick with the 4% rule. After all, for a 65yo, a SPIA pays about 6-7% of what you contribute annually for life, so most people end up leaving to their heirs more than what they had at the start of retirement if they use the 4% rule.
Good post – thanks. I think recognizing one’s own mortality is critical to loosing the purse strings.
I have a colleague my age who may not be around to see retirement. It makes you reevaluate your goals.
Also I have never been fan of annuities but there is some logic and certainly a level of comfort locking in a base income in retirement. I may have to consider an SPIA when the time arrives.
How is that kitchen update coming along? I will be there in three months and expect to see it completed. You have had almost two years to get it done. Take your advice from this post and spend the money!
Our general contractor is busy tearing his own house down to the studs and has a massive hole in his yard. I don’t think he’ll be over here doing any work any time soon, so don’t get your hopes up!
Bwahahahaha! Gotta love moms. Will there be pictures of the completed kitchen remodel? I love a beautiful kitchen.
Thanks for keeping things honest, Mom!
Hahahaha I love this comment so much! Make your MIL happy and update that kitchen! I’ve got a great contractor if yours is too busy right now.
As long as she comes to watch the kids while we go to Europe, she can have whatever kitchen she wants.
🙂 Take your own advice dad…
What are you doing on the internet? You’re supposed to be studying math.
HAHAH This is getting better and better!
Great post! I would argue that some of us super savers don’t derive much pleasure from material things. I think it’s less fear of running out of money during retirement–at least for me. As long as I have a place to run or work out I don’t really care about money. I like to internationally travel but after finding deals it’s really not that expensive. Well if you stay in hostals in the month before residency it’s clear that nice things aren’t that important!
I agree. Repeated studies have shown that increased spending beyond about 50% above median household income tends to have little, if any, further impact on life satisfaction. Once I retire, I hope to do a lot of volunteer and pro bono work, besides some international traveling and part-time RV traveling around the U.S. and Canada, the latter of which can be done quite inexpensively if you want to.
You can live a very comfortable and fulfilling life on $75-100k of annual retirement income, especially if you have no debt or children to pay for and don’t live in a HCOL area. I know of many people who make a fraction of that in retirement and are as happy as clams, many of whom are far happier than when they were working and had a much higher income.
FI DEFINITELY MAKES LIFE MUCH EASIER
if YOU BUY A spia, DO THE MATH AND MAKE SURE YOU WILL LIVE A LONG LIFE
MUCH BETTER TO INVEST THE $$$ WISELY AND PASS THE $$$ TO YOUR HEIRS
“MAKE SURE YOU WILL LIVE A LONG LIFE”
Please enlighten us how to make sure of this. I for one would love to hear it. 🙂
I read your post title before I had my coffee this morning and thought maybe I had entered some alternate-internet where things are opposite 🙂
Along the lines of the aircraft carrier trip, I’d say that when you’re giving yourself permission to spend, focus on experiences and trips over stuff. The added bonus of doing that is a healthier mental state, lasting memories, less clutter, and smaller landfills around the planet.
It is a hard to make the transition from saving to spending. I went to a funeral of a wealthy friend of mine last week. He died of ALS in his 70s. This really makes you think about the limited time on Earth.
Absolutely. Those of us in the financial planning sphere often make plans as though we’ll live to 100, yet the data indicate that a 65 year old male (female) in the U.S. only has about a 50% of surviving to 81 (84), according to SSA data.
Great post. But even better comment by the mother in law. Ha!
Now you know why so many financial bloggers stay anonymous!
I would actually love a post about finances and extended family. Since your income is out for everyone to see how has that changed relationships, or has it? Do they expect you to pay if you go to dinner, on family reunions etc.? I find the extended family dynamics very interesting, and keep our income on the down low due to it.
Luckily for us, we’ve got some great family members. No real slackers on the income front. So while we sometimes feel like we should be paying, no one would ever say anything in that regard.
I’m not sure being transparent hurts you though. If you’re a doc, they all assume you’re rich and probably a lot richer than you actually are.
Luckily, I have a brother in law that makes just under 200k a year, has the more expensive house and likes to be number one, so we just let it ride that way.
My family is pretty good about it as we all went into dental or medicine, the in-laws all decided on different paths and that’s where some of the issues arise.
Would you pay if we actually said something? !?! ????????
Between my mother in law and now my sister heckling me in the comments section, I’m not sure what to do. You better watch out, if you keep reading I’m going to put you on the payroll and put you to work.
When I got married, I was the spender and my wife was the saver. Over time, I learned to save more and she learned to spend more, until we reached a happy medium. Now I’m trying to transition from saving to spending again in the second half of my life. It is not so easy to loosen the purse strings.
Dr. Cory S. Fawcett
Prescription for Financial Success
I endowed a professorship at my medical school. Great way to get rid of a big chunk of cash, with favorable tax consequences.
Good for you! Nearly everyone who gives to a university wants to set up a scholarship for students, yet one of the best ways to positively impact an entire college for decades is through an endowment. Students can often take out a loan, but it’s much harder for a college to take out a loan to hire great faculty on a permanent basis.
These are great suggestions. As a recent member of the financially independent group, my biggest fear is not knowing if I want to retire early. Once that issue is solved which it may not be for years, the question becomes when.
Unlike PoF, I don’t have a firm plan. Mine isnt even squishy. Its fluctuates between liquid and solid. This keeps me from spending because when I have a bad day at work, or notice my kids growing up too fast or want to pursue non-medical interests – I think about retiring early and get buyers remorse over spending because I view that spending as pushing my retirement back.
My solution is to buy time as you say, by cutting back from work in 5 months. I will see how that goes. If it goes well, I’ll start spending a bit more on personal and charitable things. We will take it slow. Ideally I’d like to work part time and find that work life balance we crave. Part time work for me and my wife means never touching the nest egg at even double our annual cost of living so the numbers work out fine, easier said that done though.
Great Bizarro world spending money post.
A favorite church hymn of mine (sung to the tune of Auld Lang Syne a.k.a. New Year’s Eve Song)
To you who seek tomorrow’s gain
Tell me what is your life
A mist that vanishes at dawn
All glory be to Christ.
I have always found it a good reminder about what matters and life’s brevity.
Your son (in the photo) looks less than thrilled — but I bet being on the aircraft carrier and going on a glacier is something he will talk about the rest of his life.
You know it’s not actually an aircraft carrier, right? It’s a cruise ship. Sorry, thought that was pretty obvious.
I got confused too then. I was going to ask if this was back in the enlisted days or some veterans day thing. Cruise ship makes much more sense.
I have no idea what an aircraft carrier would be doing next to a glacier.
I have been reading the blog long enough that I know it isn’t an aircraft carrier. You might add the winky wink emoticon to clue people in.
Maybe so, but you never know. On our last Alaska cruise we had a huge 4 engine military cargo plane buzz the top of the ship at 11pm. I jumped out of bed to see it, it was awesome, but I’m sure someone got in trouble for flying so low.
Best money to value items I’ve found:
1) cleaner once or twice a month
2) parking for $100/month, saves many hours a month in hunting for street parking
3) massage school discount massages: 1hr PRN for pain/stress
Make life markedly better, more free time and more enjoyment of that time, no added clutter, not a significant hit to savings.
Anyone else have similar suggestions?
Good points. I practice moderate frugality. I’m a big fan of #5- buy time. A lot of the little stuff is not the best and highest use of my time.
Re: #1. Supporting Charity. I use the principles described here.
https://www.amazon.com/Toxic-Charity-Churches-Charities-Reverse/dp/0062076213/ref=sr_1_1/130-7794379-5598665?ie=UTF8&qid=1513017142&sr=8-1&keywords=toxic+charityed.
My city is poor; experienced with the human rehab industry. I frequent a café run by rehabilitated capitalists.
Good post. As a frugal penny pincher nearly my entire life it is hard to break old habits. But I think living frugal (and reaping the benefits of reaching independent wealth) can allow people to spend what they want when they want. Few things for me which I have let myself go…….
1) I fly first class now
2) i don’t waste time looking for best bargains. For me it is about convenience now. If that costs more, so be it
3) Renovate your house. It is a liberating endless stream of money out the door. Everyone needs a $4000 toilet right????
4) Personal stuff. I go to the spa….A LOT.
5) Our dogs live high on the hog eating raw frozen food…it’s not cheap.
6) gift a lot to relatives. Cars, mortgage down payments, college education ,etc.
I am definitely irrational when it comes to loosening the purse strings to spend more. The careful financial decisions and saving become ingrained over the years and those long established habits are hard to unwind.
A couple of years ago I went into some kind of state of shock as it suddenly hit me smack in the head that I no longer need to go to work to earn a living. But I still need to work to keep myself busy in a productive way.
So we live on about 15% of our income and send over 40% to the state and federal government. I am working on expanding the charitable giving aspect of things, and we do have 2 Teslas instead of our old Honda and Toyota, and we are taking the entire family on a wonderful trip to Asia. A work in progress…..
Wow! You have an effective tax rate over 40%? That’s terrible. I was whining about my 34% rate the other day. I guess that’s probably what mine would be if I lived in CA or NY though.
Excellent article for those in their 40s and 50s who can easily spend a lot now and still have retirement covered. Retirees, whose net worth is set, are another matter. Even those with investment assets in the 3m to 5m range are likely to underspend at a time when kids and grandkids may really need financial help. Sure, 3-5m should make a comfortable retirement, but how much can you afford to give to kids and grandkids’ 529 plans when they really need it? Underspending and leaving a large inheritance to retired kids, and grandkids who have completed their educations isn’t the answer. Unfortunately, financial advisors generally do a lousy job of advising their clients how to avoid underspending.
Part of that issue is one you rail about frequently- AUM fees. They are incentivized to recommend an underspending approach. It’s easily justified, of course, “I don’t want them to run out of money and I don’t know what’s ahead,” but it’s still wrong.
That is part of the issue, but there is another part that may be more important. There are many retirees that fall into the middle-affluent class — not so little that they have a meaningful risk of shortfall, and not so much that spending doesn’t matter. Advisors tend to lump the middle-affluent in with the lower group, because it is commercially advantageous for them to do so.
What advisors should be doing is planning retirement for the middle-affluent by engaging in a comprehensive analysis of the individual’s specific financial and psychological situation, and then planning investments and spending accordingly. Such analysis needs to be updated annually during retirement for changes in both assets and psychology. That involves a lot of work for the advisor, for which there is no additional compensation (AUM fee). It might also prove confusing and uncertain to the client, who would be happier believing in the myth of “latest and greatest science” of Monte Carlo Simulations, formulas and gimmicks that continually assures him that there is no risk of shortfall.
There are many individuals in that middle group that would be well-advised and happier to be spending more in retirement, but they have no idea how to plan for that. I suspect that there are also many DIYers in the same category.
frugality leads to FI I am not changing even if I had double my assets; when you start in the red every dollar counts
as Buffett says: Rule #1-Never Lose money Rule #2=Do not forget Rule #1
Reed Hastings (Netflix CEO/founder) said it very well. When donating to charity “writing the check is easy. Knowing who to make the check out to is the hard part”.
We’ve chosen to spend money in order to buy time . . . By working part time while the kids are young. Not something I’ll ever regret. I won’t retire in my 40’s but it’s ok because I don’t want to!
I love that giving was #1. You are so right that giving reminds us of our abundance.
Refreshing post! I find it hard to spend money because I am always thinking of the opportunity cost of my purchases. For example, when purchasing something I always ask myself, “Could I have put this towards my debt instead?”