[Editor's Note: Today's WCI Network post is from James (Jimmy) Turner, MD at The Physician Philosopher. Jimmy has a new course out, Medical Degree to Financially Free, on sale now from May 26th through June 10th. The course gives doctors a 5-step process to implement for paying down student loan debt, setting individual goals, and getting on the right track to financial freedom. You can check out the first 14 days risk-free. In today's post, Jimmy talks about the importance of spending your money on what you really value. I wholeheartedly agree.]
Your relationship with money can either promote wealth and wellness, or it can worsen your already smoldering burnout. Our relationship with money can be complicated! We have all been there. You make a big purchase on a home, a car, new clothes, or designer gadgets… only to experience buyer's remorse soon thereafter.
Maybe we should just avoid spending money on anything that is non-essential. That would solve the buyer's remorse problem, right?
One of the differences on The Physician Philosopher – compared to many other personal finance sites – is that I like to remind people that it’s okay to spend money. While saving is important – we also need to make the heart happy. Unfortunately, spending money in the wrong way can often produce Buyer's Remorse. Yet, it doesn’t have to cause pain!
While it’s important to achieve our big picture financial goals, it is also important to remember why you set out on this journey: to obtain financial freedom so that we can prevent/escape burnout and produce a life full of contentment. I’m here to tell you that you can avoid consumer regret through intentional spending.
What is Intentional Spending?
The answer to buyer's remorse is to utilize intentional spending.
The idea behind intentional spending is to recognize that, while budgeting/tracking spending is vitally important to your financial success, it is also important to let loose every once in a while. As long as we use a backwards budget to make sure we are achieving our big picture financial goals, we can spend the rest however we please.
Yet, if we don’t spend our time and money with clear goals and intentions, it can still lead to buyers remorse. The reason we need to spend intentionally is that when we let loose… we aren’t particularly good at it.
There are many studies that show Americans are really bad at letting loose. Americans leave billions of days of vacation unused each year. Even when we do take a vacation, we apparently aren’t very good at it. It often leaves us less happy when we return from vacation than when we left.
The reason? One Harvard study seems to think that it’s because we plan poorly when we take the vacation and the travel stress (if planned poorly) off-sets any happiness we would glean from the trip.
Interestingly, there has also been good research to suggest that how far we commute to work also affects our life satisfaction! Apparently, how much and how well we travel has a profound impact on our enjoyment in life.
Because we aren’t any good at letting loose ad-lib, this means we need to be very intentional when we do let loose. Don’t forget that the vacation analogy extends even further. We’ve discussed that a poorly planned vacation with loads of travel stress actually hurts you. Similarly, spending money you don’t have and that isn’t in your budget will increase your stress!
If it causes you to go into debt, finance/leverage a purchase, or prevents you from adequately saving, it is likely not worth it! That is not intentional spending.
Intentional spending makes your head and your heart happy! If it isn’t accomplishing both, it isn’t intentional spending.
Steps to Intentional Spending
Here are four steps to help produce some intentional spending in your lives!
Step 1. Backwards Budgeting
Part of avoiding buyer's remorse through intentional spending means budgeting. Don’t worry, though… I hate zero-dollar budgeting where every dollar has a “job”. I’m not going to encourage you to do that unless it is absolutely necessary.
Why? Because I don’t do it. That’s why I use cash flow planning and backwards budgeting, both of which I teach in my course Medical Degree to Financially Free.
However, that doesn’t give you free rein to spend money without thinking about where it is coming from or what it will impact. Make sure that you have the money to spend and that it will not impact your ability to aggressively save or destroy debt!
Are you still going to get to your Financial Plan goals? Check this box first. This is step 1, 2, and 3 of intentional spending. Use products like Mint or Personal Capital to see where your money is currently going.
Then, set up a backwards budget to help you attack the big picture goals. This kind of budget encourages you to (1) define your big picture financial goals, (2) pay your future self first, (3) automate your financial goals, and then to (4) spend lavishly on the money that is left!
What you have left, is the money you can spend intentionally and with zero judgment, because you’ve already taken care of your financial goals first!
Step 2. Take a Minute to Think
While we can consult the research on what makes people happy, it is also important for us to spend time thinking on the subject for ourselves.
This could mean going skiing in the mountains, spending a long weekend at the beach, or going to a Big City you’ve never seen. As mentioned above, though, it should be well planned and travel stress kept to a minimum!
We can also prevent buyer's remorse and derive financial happiness from spending money on other people, buying smaller items more frequently, and delaying big purchases.
Step 3. Research Money Spent on Stuff
If you really want to avoid buyer's remorse, take note of the things that have caused you that pain in the past!
First, take inventory of all of the stuff in your house and your garage. Think about how happy it made you at the time of purchase. Then, think about how happy it makes you now. You may even have some consumer regret. The reason for this many times is that we made a purchase with little thought.
When you aren’t spending money on experiences and do choose to spend money on things, take some time.
In fact, if it is a substantial cost, I recommend you endorse The One Month Rule. This will allow you the time to do research. Find the best product for the best price.
For example, when my wife and I needed a new mattress, we did our research. Apparently, mattresses are most cheaply purchased in May. Who knew? So, we waited until then to purchase. After all, there are very few “mattress emergencies” that would necessitate a dire need to buy one right now!
What constitutes a “big purchase” will be different for every person, but – whatever that number is – spend some time researching big purchases. You may find during the process that you’d later regret it.
Step 4. Apply the 10% Rule
It is important to keep our spending in check, particularly when we receive large amounts of money. When we receive a bonus, raise, or windfall; this is the perfect time to apply The 10% Rule.
The 10% rule is applied when you get a raise, promotion, bonus, or other unanticipated money. After you look at your post-tax take-home pay, take 10% of any money you receive and spend it on whatever your heart desires (after thinking about steps 1-3 above).
Spend that 10% with zero judgment and no buyer's remorse. How is this possible? Because you are crushing your financial goals with the other 90%!
See, the 90% goes straight towards your wealth accumulation rate (WAR). Use it to pay down your debt or to invest for your savings goals, including achieving financial independence, investing for your kids' college, or whatever other goals you may have!
Abiding by this rule is what allowed my family and me to pay down $200,000 in student loans in 19 months, and increase our net worth $250,000 in one year.
Take-Home: Buyer's Remorse
The purpose of the intentional spending philosophy is to remind you of one thing. As long as you are obtaining your financial goals, it is perfectly acceptable to spend money! Budgeting and personal finance can become so restrictive that it affects your marriage and maybe even your mental health.
Just like you deserve (and need) to take that well-planned vacation to relieve stress, produce work satisfaction, and increase motivation at work; you need to perform some intentional spending!
What do you think? Do you spend intentionally? Do you overspend? Does your budget stress you out? Do you need a break? Leave a comment. I want to hear your intentional spending stories!