Every few months (or years) many of us run up a credit card bill or Venmo charge balance that leaves us scratching our heads. This experience can put a serious damper on our financial goals and ambitions, but today we’ll talk about how to avoid this discouraging feeling. Read on to find out why spontaneous spending habits are actually quite predictable and easy to manage with the right gameplan in place.
My Spontaneous Spending Reality Check
Each fall, I spend what some might consider an obscene amount on football-related contests. Fantasy football, office pick ’em pools, etc. I want it all. You name it..I’m interested. I might even pay for a few insider reports to convince myself that I have better shot of winning.
Many financial experts would gawk at this, viewing it as a crazy amount of money to “gamble” on a sport. But it’s something that matters deeply to me. The friendship, camaraderie, excitement and pleasure that these contests provide me over the course of a season are worth a tremendous amount. They also reconnect me intimately with the game of football which was instrumental in my upbringing. These intangible benefits are worth infinitely more to me than the money I commit up front.
So yes, I spend a ton on these football-related leagues. On top of that, I constantly find myself joining additional ones. And dues for existing leagues often rise annually as well. This used to inspire panic in me.
I vividly remember checking my bank account one September a few years back and gasping at the amount of money that I had spent. Money felt out of my control in that moment. And this is the pivotal instant where too many people call it quits. They throw up their hands, curse the world, and think there’s no way they can ever save when these bouts of seemingly spontaneous spending cripple their financial goals.
But hold up, there’s a better way. These days, I don’t even blink when I look at my September bank statement. My “spontaneous” spending is completely baked into my plan with an additional cushion for good measure. In fact, I’d be comfortable spending even more on football in future years.
Today, let’s talk about to build this financial resiliency. We’ll ensure that you’re never that naive young saver ready to abandon your financial goals the moment you realize that you spent lavishly over a given stretch.
Brief Aside on Cash Snacks Money Values
Let’s pause for a moment. Before discussing how to neutralize the negative impacts of spontaneous spending in your life, I want to talk about Cash Snacks’ money philosophy more generally. I think its important given my anecdote above.
If you read conventional financial advice from the Old Guard of money experts, my story and point of view might seem jarring. After all, I’m encouraging you to spend more on certain things. But here’s why.
Cash Snacks is not here to preach that you live a life of monk-like deprivation. It’s quite the opposite. You should spend freely and excitedly on the things that you love. This is true even when it leads to lumpy stretches of sky-high spending.
The important part is that you have a plan and feel in complete control. Use your money to create joy. Spend it empowering yourself and others. Okay, I’ll step off my soapbox. Back to our original programming.
Spontaneous Spending is Not Actually “Spontaneous”
The majority of what people think are spontaneous decisions or circumstances in their lives are not. Holiday gifts and travel. Moving houses or apartments. August beach vacations to close out the summer. That month where you renew all of your annual subscriptions. The list goes on, but you get the point. These items may feel spontaneous or haphazard the moment you check your bank account. But with a little added effort, you will discover patterns that are quite predictable over the long term.
Acknowledgment of Spending Patterns
“The definition of insanity is doing the same thing over and over again, but expecting different results”
Albert Einstein
Step one in neutralizing the effects of spontaneous spending is acknowledging the following fact: expenses can be infrequent but regular. That is the root of the entire issue.
For example, every holiday season, the vast majority of people are floored by what they find when they finally open their bank app come January. Yet they’ve flown across the country to grandma’s house for the last 5 years in a row and spent roughly the same amount of money on gifts annually.
Don’t be so surprised. Acknowledge that flights will be priced at ridiculous rates. Accept that you’ll splurge for mom’s new Apple Watch. Anticipate these points proactively and recognize that you’re in total control.
Now this acknowledgment is a great first step, but recognizing the problem is only part one of developing a solution. Let’s talk about a plan of action.
A Plan to Neutralize Spontaneous Spending
So you’ve come to grips with the idea of infrequent but regular expenses. You’ve even identified a couple expenses in your own life that meet this criteria. Great start, but now what?
Unfortunately, there is no magic bullet solution here. After you’ve analyzed your macro-level spending patterns over the course of a couple years, you need to decide how to build it into your financial plan.
I can’t tell you exactly what that most optimal plan will look like for you. What I will offer is an outline of my own strategy for tackling these types of expenses. I’m not saying it’s fool-proof or even the best way, but it’s been effective for me. Even if it doesn’t fit squarely with your goals, I hope you can use it as a reference and modify it as needed.
My Spontaneous Spending Plan
Some may find this surprising, but I hate budgets or anything that feels overly restrictive when it comes to personal finance. I don’t actively log expenses in a spreadsheet or stress the details. Instead, I save aggressively and aim to automate as much of my financial life as possible. Hence, my strategy is not overly scientific or regimented. I’ll use the fantasy football spending that I mentioned at the start of this article to illustrate my approach.
As a first step, I identified these football-related expenses as infrequent but regular. I looked at my typical cash outlay at the start of a season, over a couple of years, and calculated an average spend level. Then I doubled it! As mentioned earlier, league dues often rise annually, and I knew that I might want to join additional groups in the future.
For the sake of argument, let’s say my savings target came out to $500. I decided that I would save this amount over a 10-week period. Since I get paid every 2 weeks, this equates to an allocation of $100 of every paycheck for 5 pay periods. Based on this, I just set an auto-transfer from my checking account (where my direct deposit hits) into my savings account for the 10 weeks leading up to September.
Boom! This plan gave me more than enough extra money in my savings account to cover all of my league payments with a comfortable surplus included. I have continued to use this same type of strategy every year.
And the best part? It’s no big deal! I hardly even notice the money being saved. The transfer to my savings is automated and immediate once my direct deposit is disbursed. It doesn’t sit in my account. There’s no temptation to spend because the money is funneled elsewhere before I even realize it. It’s similar to the way 401K investments are automatically deducted before you receive your net pay. Of course, there’s no tax advantage in this case. Still, this strategy manages to trick you into saving even if you lack the willpower to do so actively.
Trade-off Between Saving Duration and Dollar Amount
You can rinse and repeat the plan above for any infrequent yet regular expenses in your life. From holiday shopping to future moves to your favorite retailer’s annual sale.
But keep in mind, there is an inherent trade-off that you need to make. An inverse relationship exists between total time spent saving versus the proportion of each paycheck that must be saved. Put simply, the earlier you start saving for an infrequent expense, the less you’ll feel it.
Let’s look back at my $500 example from above. I said I decided to save for my football expenses 10 weeks in advance ($100 per pay period). What if I I was even more disciplined and decided to save 20 weeks in advance? This would only require me to devote $50 per 2-week pay period. Alternatively, if I decreased my savings duration to 4 weeks, I would have to devote $250 per pay period. This could impact my quality of life noticeably depending upon overall cash flow needs.
Customize this trade-off between duration and proportion of income saved to fit your unique situation / personality. If you know the future expense that you’ll incur is relatively large compared to the income you generate, it often makes sense to extend your savings duration as much as possible. This will minimize the disruption that you feel in your daily spending power.
For more reasonable spending events, I tend to opt for a moderate approach where I begin saving 8-16 weeks in advance. In this range, the spending event is close enough to feel “real” without being so close that my quality of life takes a material hit due to the implementation of an exorbitant savings rate. Again, this is just what I’ve found works best for me. Experiment to see what the optimal saving duration is for you and your own goals.
Spontaneous Spending Key Takeaways
Many of us struggle after periods of elevated “spontaneous” spending. We might flip open our mobile banking apps weeks after the fact and feel crippled by the dwindling account balances that greet us.
But as motivated students of personal finance, we know better than to fall into this trap. Sure, certain unexpected emergencies will happen: natural disasters, car accidents, health crises, etc. That’s why we created a rock-solid emergency fund in Level 1 of the financial game.
For the most part, however, expense patterns are predictable. We can spot them a mile away if we just take the time to look. And it’s our responsibility to put systems into place that provide us with a sense of control. It all starts with awareness and a plan of attack. Make yours today!