Why ‘Treating’ Spending Is a Smart Money Move
It’s no secret that the trick to building wealth is investing over time – and that includes saving money you might want to spend.
But while it’s a good idea to focus on the long term when investing, you want to avoid saving so much that you end up “revenge spending.” The word means overflowing after a period of restriction, such as when you restrict your spending for six months, but then you go to the mall and buy as many things as you can think of that put off your hard work.
Indulging occasionally shouldn’t make you feel guilty, as long as you do it in moderation. In fact, this type of money can help you stick to your long-term plan better, because of the psychological benefits.
The benefit of ‘management budgeting’
It takes self-discipline to make spending decisions that support your long-term savings goals. Allowing yourself to reward yourself with guilt-free spending can help you stay consistent. So while spending money on non-essentials may not sound like a financially savvy move, it can prevent unexpected purchases in the future that weren’t factored into your budget. That big purchase might happen if you feel like you’ve been cutting yourself short on your financial journey.
If you spend less money each month, you may have more incentive to make more money and cut unnecessary expenses. For example, canceling the monthly subscription fee may mean you can give your budget a better management. Making sure you set aside some money for fun each month can eliminate the feeling of deprivation as you work toward long-term financial goals.
Save Smartly: Manage your money with Rocket Money’s budgeting app, one of Money’s favorites
How to use a ‘treatment budget’
In order to spend your money on non-essentials responsibly, you will need to determine the size of the budget and put a plan in place.
Define your ‘treatment budget’
Your “medical budget” is a small amount of money that you set aside for innocent spending, such as going out to eat with friends or buying a new book. It will vary from person to person, depending on your income, savings and goals.
The 50/30/20 budget allocates 30% to “want” and can be a useful guide.
Gold Offer: Sign up with American Hartford Gold today and get a free investor kit, plus get up to $20,000 in free silver on qualifying purchases.
Create an application
Once you’ve figured out how much you want to spend each month, figure out what makes sense for you in terms of how to spend it. You can even make a list of things you’d like to buy for guilt-free money and roll out purchases throughout the year. For example, maybe you want a video game and are saving your operating budget for three months to buy it.
More Money: See how you can get up to $1,000 in stocks when you fund a new SoFi investment account
Another option is to simply spend on what you want without planning – as long as you don’t spend more than what’s in your budget. Setting aside money for innocent spending reduces the risk of making large, unplanned purchases that will damage your future savings.
