Do you have difficulty spending money you’ve saved? The title of this article was a recent comment from someone who just inherited a lot of money and was afraid to spend any of it. For a lot of people who have been aggressively saving money, spending the money is a hard thing to do. “Never touch the principal” gets too much traction sometimes.
After talking about her feelings and why it was so hard for her to spend money, I learned these feelings went back to earlier years when money was very tight. She and her husband needed to frequently borrow money to make ends meet. Just as their loan gets paid off, something would happen to force them to take out another loan. After years of working their way out of that paycheck-to-paycheck hole, they no longer need to borrow to make ends meet. But her tight grip on the money in the bank has not loosened even though her situation has improved.
(There is still time to join me at the Physician Freedom Summit 2025, October 6-8, in Los Angeles. I’d love to talk with you in person.)
We discussed this issue and the need for our spending plan to evolve as our net worth grows. The plan we make when we are 22 is not the same spending plan we should be using when we are 52. The plan should go through multiple revisions. Since she was much more confident after our discussion, I thought I would share the highlights with you.
We must change with the times
As our situation changes so must our spending plan. During training, when we are living on student loans, we should be on a very tight spending plan. But once we have graduated and start earning a salary and are no longer borrowing money to eat, we can loosen our purse strings.
At that point a new plan needs to be adopted to use our new income. Spending will expand to accommodate our new expenses, such as student loan payments, taxes, and a retirement plan. Even though things loosen up a bit, spending is still tight.
Once we become an attending our income jumps up a lot. Again, it is time to make a new plan. Our family begins to expand, our student loan repayments continue to accelerate, and we are thinking about buying our first home.
At this point there is a tendency to go overboard in our spending because of the huge jump in income we experience. But we must make a plan that increases our lifestyle without breaking the bank. We need to reap some reward for all our hard work, but that doesn’t mean we run out and buy two cars on credit with six figure sticker prices.
When we reach retirement those who haven’t been paying attention to their spending may be afraid their money will not last the rest of their lives, so they do silly things like not turning on the air-conditioner to save money on their electric bill. Or they may drive all the way across town because gas is three cents cheaper per gallon at that station. Frankly, the amount you pay for gas and the use of your air-conditioner will not be factors in how long your money lasts. That will be decided by much bigger fish in the plan. Don’t make yourself miserable trying to scrimp on little pleasures in life only to have the big things sink the boat. Get a good plan to take care of the big things so you can enjoy the little things.
Stay within reasonable limits
I like to think about income changes like driving a car. When we move off the side streets and merge onto the freeway, we are in a new situation. We must drive faster. But even the freeway has a speed limit.
If we do not accelerate to the speed of the traffic around us, we may experience some trouble that could lead to a bad accident. Just because we were driving 35 MPH, doesn’t mean we continue at that speed. But, just because we can, doesn’t mean we should drive 100 MPH either.
We need to treat our life changes the same way we would when we merge into a new traffic speed zone. If we are too tight with our spending, we will miss out on a lot of great life experiences that make life enjoyable. If we spend way too much, we could end up in bankruptcy court.
There is a happy medium we should strive to reach as we aim to stay within the guardrails of the road we are on. Spend a reasonable amount for the situation. Pay all our obligations, save some for the future, and spend some for enjoyment in the present.
But how does one know what a reasonable spending plan might be as our situation changes?
Making a spending plan
EVERYONE should make a spending plan (budget). And EVERYONE includes you, even if you think you don’t need one. Even if you get lazy and don’t keep track of money all the time. You must draw out a reasonable spending plan, especially when things change and your spending must evolve with the times. If you have a good plan, you should never feel bad about spending your money.
Begin your spending plan by making sure you have all the basics covered: an affordable place to live, a reasonable car to drive, and healthy food to eat. Make sure you have the right insurance to cover everything you need protected: home, car, health, life, disability. Set up a saving plan that will take care of you when you can no longer earn a living. Make a plan to pay off your debts well ahead of schedule which will cut down on the interest you pay.
Once you have all the bases covered, you are free to spend the rest of your money as you please. You should no longer worry about the future when you spend your money as budgeted, because your spending plan makes sure the future is covered.
Almost every time I talk with someone who is afraid to spend money, I discover they do not have a spending plan. The reason they are afraid to spend money is because they are not convinced their future is secure. Establishing a spending plan is what will free them up to enjoy their money.
People often think of spending plans as restricting their spending and forcing them to cut back on their fun. The opposite is actually true. A spending plan gives you the freedom to spend all the money allocated for items in each of the categories. Even the FUN category.
Once you are convinced you have everything you need covered, you can spend the rest as you want without worry. Your spouse will not need to worry either. A spending plan is your ticket to spending freedom.
Can I afford to travel?
I once had someone come to me for financial advice about an upcoming trip. She was about to retire, but her friends were going on a once in a lifetime trip and she wanted to go with them, but not if it compromised her retirement.
She asked me if she had enough money to go on the trip. Many radio talk shows are built around the question “Can I afford it?”
We looked over her plan and it was clear to me she had enough money to go on the trip and meet her retirement goals. Now she felt free to have this great experience with her friends without worrying about jeopardizing her future. She had a great time. She didn’t worry about the cost of items on the menu, because she knew she had enough money to cover the trip and plenty for her retirement.
Live life to its fullest
You can’t truly live life to its fullest if you or your spouse are worried about the cost. Making a spending plan, at least one month a year as a tune-up, will give you the confidence that you can afford to have fun with a portion of your money.
After a short conversation with the person who told me she felt nauseated spending money, I asked her if her father was the same way. She said he was. In fact, she kept trying to get him to spend more money because he had plenty to last the rest of his life.
I told her to follow the advice she gave her father. That was an Aha moment for her. Make a spending plan and enjoy the fruits of your labor. Life is too short to continually worry whether or not you can spend the money. Figure out the answer to that question by making a spending plan and then you can go out and enjoy life to its fullest.