All right, friends, hear me out. Before you start throwing rotten vegetables my way, realize that I am not alone here. Definitely not as alone as I thought. As someone who grew up in a lower middle class family, I learned to be frugal and thrifty at a young age. Seeing how finances often stressed my parents, I didn’t want those same issues as an adult. So I made saving a top priority as soon as I got my first big girl paycheck. The problem is I almost became addicted to the security of having money squirreled away. Once we paid off all our student loan and car debt, my scarcity mindset lingered, telling me I wasn’t safe, and it became hard to learn to spend money after years and years and years of saving it for other purposes.
I’m not about to boost that I’ve found the secret sauce and am now an expert as intentionally spending money. If we’re being honest, I’m currently probably a solid B, B- student in the subject. I still have an emergency fund for my emergency fund. Even though we’ve officially hit Coast FI status, I would much rather save $500 for my Roth IRA than spend it on concerts and eating out.
But I have learned how to let go of the guilt around enjoying some of the money we’ve worked so hard to save. If you find yourself in a similar mindset, I hope my reflections below help you, too. Please share your tips and tricks in the comments. The overachiever in me would like to learn from the hivemind and bump that B up to an A+ for next semester.
What is a scarcity mindset and why does it make spending money hard?
A scarcity mindset is when you believe resources are limited and that you don’t have enough. In fact, you believe you’ll never have enough of the things you desire, even when the facts laid out before the jury clearly paint a different picture, your honor.
We hold this truth to be self evident, even when the actual evidence tells us we are, crushing it when it comes to our money goals.
This mindset can be a source of self-preservation if funds are tight and you’re struggling to meet your basic needs like food, shelter, clothing, and transportation. A scarcity mindset, in fact, usually develops from living in such a state for a season of life. It isn’t always a bad thing: it can help you tighten down your budget and squeeze every penny out of your income when it feels like the math just isn’t mathing.
It can also cause you to become Uncle Scrooge McDuck and horde all your wealth if left unchecked once you’re further along your path to financial independence.
I’ve often found myself in this second miserable boat. I can look at all the spreadsheets in the world and know logically that we’re good. We have room in the budget for the vacations we want to go on and the surprise gifting we want to do for our friends and family. Our house budget isn’t going to leave us house poor.
And yet that scarcity mindset from when I was living off student loans in college is the little devil on my shoulder, telling me I’m tripping balls if I’m even considering buying a house worth that much or spending that much on our next road trip.
That scarcity mindset devil is a dick, and he can be extremely loud if you don’t learn how to gag him and toss him in the closet with the Furby that freaked you out in the middle of the night as a kid until the batteries finally died. Again, I’m no expert, but below, I highlight what’s helped me on my journey. What works for me might not work for you, but I hope it at least gives you an idea of what to try.
Learning how to overcome a scarcity mindset and spend money
Pay yourself first
We talk a lot about setting up retirement savings as an autopay for yourself, and I think this mindset on prioritizing saving in your budget can help quiet that devil on your shoulder.
We auto contribute a portion of each paycheck into our 401(k) plans and HSA. We also completely max out our IRAs every year, with payments auto drafted on the same day each month that auto invest based on our asset allocation plan.
These retirement contributions are non-negotiable in the budget. We take them off the top income line and only allow ourselves to debate what remains after 25% of our gross income is going somewhere for retirement.
While my husband would love to save 50% of our income and we usually still invest our monthly income surplus into a brokerage account for early retirement, we know that no matter what, we’re covered for retirement with this 25% we pay our future selves first. Once I know I’m set up for the future, it’s easier to enjoy spending more in the present.
Give yourself an entertainment budget or dedicated fun money
By having a set amount of fun money to spend every month, you give yourself permission to spend money on what you enjoy. Before we did a monthly zero-based budget, I always felt guilty spending. I was tracking what I spent versus budgeting for fun, so each dollar that went to buying a new book or taking a writing craft course was a dollar that didn’t go toward paying off the house or retirement. Insta-guilt.
Now that we have an entertainment budget, I almost feel guilty NOT spending it. That’s money I set aside specifically to enjoy. If I don’t enjoy it, I’m robbing myself! Not only do we have dedicated fun money, but we intentionally budget a little more than we’d normally spend, just to show that scarcity mindset who’s running the show.
That’s not to say I go out and blow it just to spend it. If we have entertainment money left at the end of the month, which we often to, we roll it into our sinking fund for vacations, since that’s about the one area where I typically can find it in myself to spend more money.
Set a reasonable entertainment amount that is in line with what you make, what your monthly required expenses are, and where you are in the process. For example, if you have a ton of credit card debt, you don’t need much of an entertainment budget at all because you have a fire to put out first. In this case, you should listen to that scarcity mindset, because money is still scarce until you’re done paying off obligations to other people. But if you have a paid for house and $10,000,000 in retirement will low monthly expenses, you can go cruising all the livelong day. Act like it! Give yourself that permission to enjoy what you’ve worked so hard to earn or what’s the point in having it? Spoiler alert: you can’t take it with you when you head off to the great beyond.
Since each situation is different, it’s hard to provide a general guideline that works for all situations (trust us, we spent a lot of time debating and trying). In general, for the average middle income earning Jane Jones who is out of high interest debt and is still saving for retirement, 5%-10% of your income might be a good baseline. (Notice this is different than spending all of your 30% of wants from a 50-30-20 budget on fun.)
Do this not just on a monthly scale, but overall for a year, as you might save more for vacation in one month than you do in another. By zooming out, you can get a greater picture of your entertainment expenses versus your overall income. Once you know your spending is in line with your income and that you aren’t out here slinging dolla dolla bills at every Escape Room and concert you can find, you may find yourself finally able to enjoy that portion of your income you’ve worked so hard for without forcing yourself back into a situation where the scarcity mindset is no longer crying fowl.
Be intentional about spending that money once budgeted
I touch on this above, but it’s worth repeating. Some months, especially around the holidays, we can on occasion spend more than our normal entertainment budget because we love taking our nephews to holiday events and seeing shows with friends. We usually adjust the following month for the overspend.
I’ve had to train myself to do the reverse too. More often than not, we don’t use our entertainment budget every month. Sometimes, I’ll use that as an excuse to buy an album I’m currently obsessed with so I have new gym tunes. Why hello, Lindsey Stirling, yes I would like to pound pavement to some wicked violining today. Or I’ll purchase something to help with what we want to do here around The Budget Brigade and with my creative fiction writing. And other months, I’ve got nothing.
That’s OK.
But we used to just take that overage and dump it into retirement savings at the end of the month. There’s nothing wrong with that, especially as we’re still working our way up to the final rung of the FIRE ladder. But as someone with an over saving issue who can struggle to justify spending and enjoying money, those leftover funds could serve a better purpose.
Now, I like to look at the “wants” categories in my budget a week before the end of the month. If we have a lot leftover in the restaurant fund, I’ll see if there’s a nice dinner we can get dressed up for to go out. If we have a lot left in the entertainment budget, I’ll see if there’s a board game we’ve been wanting to get for Friday night game nights. Or a piece of camping equipment we want for vacation (this month, we splurged and finally got a pair of binoculars on sale after musing about them for over a year. Talk about high class living). If nothing else, we decided a few months back to roll that into our vacation fund so we can add on an extra excursion to our Norway cruise next year, or book a more convenient flight when we head to my cousin’s wedding this winter.
When funds are tight, it’s easy for natural savers to justify cutting back and doing without. So pad those funds a little to allow yourself that comfort to splurge.
Align your spending with your overall goals
Goals help us align our money with our lives and are the best way to stay motivated and on track. If you are at a point in your life where you have a specific savings goal, it’s OK to save more and spend less, especially if that savings is for something you’ll enjoy in the future, like a brand new minivan or a camper to do some epic cross-country road trips. This is still money you’ll be enjoying, just a little further down the road, same as saving for retirement. There’s nothing wrong with these goals.
But don’t let saving for the sake of saving and having money define your life. You only get one opportunity on this wild ride. Don’t spend it all waiting for a tomorrow that might never come, or will come too late for you to enjoy it.
Don’t mishear me here: this is not an excuse to YOLO through your savings and leave yourself without a retirement plan. I’m talking to the penny pinchers hiding behind the desks in the back of the room here.
While you don’t have to spend money to enjoy life, you do need to at certain points enjoy some of the money you’ve worked so hard to save. Money is the tool you use to reach your goals in life. It isn’t the goal itself. Having money for the sake of having money is pointless–your money needs a purpose. Save the cheerleader, save the world! Don’t just drive around aimlessly in a Nissan Versa.
Saving for the specific purpose of having the freedom of options in your life is a key to reaching financial independence. Similarly, spending for specific purposes is a key to learning to spend money wisely without guilt to overcome a scarcity mindset.
Be intentional with your savings and spending, then don’t be afraid to enjoy your money the way you want to.
Wax on, wax off, young grasshopper
My final advice (for now) is go slow. If you’ve been spending like a snail, you won’t be barreling through the entertainment budget like a tornado next month. Slowly work that spending muscle, increasing your budget a little each month until you get to your target goal. If you fall off the wagon and find yourself underspending and dumping it all into investments, have grace with yourself. Leave it in the S&P index fund and try again next month.
Changing money habits, just like changing any other habit, is HARD. Learning to spend is just as tough as learning to save. No one wakes up overnight debt free unless they have some rich uncle who passed away in his sleep and left them a massive inheritance. Take the time to explore where your scarcity mindset comes from and slowly challene it until you’ve built yourself a safe and secure little spending muscle. Then find the cutoff tee and flash that gun.