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How to Spend Money

I loved this recent post by Michael Neill at!

Everything should be made as simple as possible – but not simpler – Albert Einstein

Common financial wisdom suggests we save and invest at least 10% of our income, spend 10% to 20% on debt reduction, and if we are spiritually inclined, we give away 10% more in the form of a tithe or offering.

Yet while I have seen thousands of books written on how to save, invest, reduce debt, and tithe, I have only ever seen a few on what to do with the other 60% – 70% of your money – i.e. how to spend it.

There are two key skills in spending your money wisely – prioritizing and timing, or what are you going to spend your money on and when are you going to spend it?

1. What shall I spend my money on?
Regular readers of these tips know I like to break priorities down into four basic categories:

A – Bad things happen if I don’t do it
This roughly corresponds to the words “Must Do”, but the caveat is that many of us have become experts at turning out wants into needs and our ‘should’s’ into ‘musts’. “Bad things happen if I don’t do it” refers to real world consequences and not just “I’ll feel bad”. If your car/home/spouse will be repossessed, it’s a true A; if your car/home/spouse will just be mad at you, it’s not.

B – Good things happen if I do do it (but nothing particularly bad will happen if I don’t, at least for a while)
This distinction roughly corresponds to Steven R. Covey’s Quadrant II – those things that are important but not urgent. Most investments fall into this category, as do many kinds of tithing, education, and support (including training, coaching, and our fantastic one year e-coaching program, Success Made Fun! :-) . For many of us, these are the things we know we “Should Do” with our money.

C – That’d be nice
This is the luxury category – not necessarily in terms of luxurious, but those things where our lives will not be appreciably better or worse as a result of spending or not spending the money, we just want it!

D- I’m going to regret this later
It’s amazing how often we know we’re not acting in our own best interests even as we’re doing it. If you’re not sure, follow this advice (also known as the “categorical imperative of logotherapy”) from Holocaust survivor Viktor Frankl:

“Live now as if you are already living a second life,
and as if you had acted in your first life as wrongly as you are about to act now.”

2. When Shall I Spend it?
There are many things we want and/or need to spend our money on, and in this modern age of integrated advertising (see bonus tip below!), we are continually being encouraged to spend it NOW!

Yet every dollar or pound we spend today is not there to be spent tomorrow, and knowing what we will predictably want or need to spend money on in the future can usefully influence our spending situations today.

Bonus Tip – Integrated Advertising
Billions of dollars are spent each year in order to convince us that we not only need what others have got but that we need it NOW! As VCR’s and things like Tivo and Replay TV make it easier and easier for people to skip commercials when viewing television programs, advertisers have countered by spending more of their advertising budgets on product placement, or so called “integrated advertising”. Next time you watch TV (or even go to the movies), look for the number of easily identifiable consumer goods you see in use by the characters in the show – they’re not there by accident!

Today‘s Experiment:
(Today’s experiment is adapted from the now sadly out of print Uncommon Cents by Lisa Vermillion, Lynn Robbins, and Dennis Webb.)

1. Make a list of everything you are contemplating (or predictably will be) spending a significant amount of money on in the next 3 years. Include both the practical (school fees, mortgage, taxes, home repairs, etc.) and the fantastical (Big screen TV, new wardrobe, trip to Hawaii, etc.) You get to set your own “significant amount of money” threshold – i.e. only things over $100, or $500, or $1000, etc.

2. On a seperate sheet of paper, create a chart with four rows and two columns as follows:

Within a Year
One to Three Years
A – “Bad things happen if I don’t”
B – “Good things happen if I do”
C – “That’d be nice”

D – “I’m going to regret this later”

3. Place each item on your list in the appropriate box.

4. Spend and save your way down the chart! Your first spending priority is anything listed under “A – Within a year”. If you’ve got any money left (!), start spending it on your “B – Within a Year” box. Be sure to put some money aside to save towards your “A – 1 to 3 years” items and your “B – 1 to 3 years” items before you get too stuck in to the “C”s. If you’ve got any money left by the time you get to “D”, congratulations – you officially have too much money!
5. As new expenditures appear on your spending horizon, slot them in to the appropriate category on your chart.

Bonus Tips:
a. Don’t get discouraged if you feel as though you don’t even have the money to cover your ‘A’s. Most people find that when they stop spending their money on C and D priority items, they’ve got a lot more than they think!

b. Don’t try to follow this too rigidly! Sometimes a “B” spending priority will help you cover your ‘A’s for years to come (i.e. a well-placed investment in your own business, skills training, or coaching), and sometimes a “C” spending priority reminds you of why you’re playing this game in the first place. Having said that, did you know that $30 a week (less than you probably spend for lunch in a week) at 15% interest compounds to over $1,000,000 in 25 years?

c. Try this at work with your business partner or at home with your significant other – what you discover about each other’s spending priorities will save you a fortune in years to come!


One of the most useful questions I have found over the years related to any significant purchase (based on whatever amount of money you decide is significant) is what I call ‘the spending question’:

Given that I have now decided it is OK to spend this much money,
is there anything else I would rather spend it on?

For example, on Thursday I was about to invest around $40 in books – a situation I must admit I find myself in once or twice a week! When I asked myself what else I might want to spend $40 on, I thought about:

  • dry cleaning
  • a portable CD player
  • 5 lunches
  • 10 cappucinos
  • most of one date with Nina
  • taking the kids out to Denny’s for breakfast twice

In this case, I decided to go ahead and buy the books, but with a far greater appreciation of what I was spending.

Now, let’s look at this same principle in relation to a larger purchase – say, a new car. You do some research and figure out you can get a great new car for $5000 down and $500 a month. Once you’ve decided to spend the money, you stop and ask yourself one last question – given that I’ve decided it’s OK to spend $5000 now and $400 a month, is there anything else I’d rather spend it on?

Well, $5000 would make a great start to an investment program, or it could knock a huge clump of your personal debt. You could use it to begin remodeling your kitchen, or to make a tangible contribution to your school, church, or favorite charity.

But let’s say you’d still rather get the car…

For $500 a month, you could:

  • Create a regular charitable donation
  • <Accelerate your savings, investment, mortgage or debt repayment program
  • Take on a series of advanced skill training or adult education programs
  • Hire a coach (And yes, that coach could be me… :-)

You could also do a number of small things, including:

  • Hire a part-time cleaner ($100 a month)
  • Join a gym ($30 a month)
  • Get a weekly massage ($250 a month)
  • Go to the theatre once a month ($100 in LA, New York, or London!)

After reviewing your choices, you may still decide to buy the car. On the other hand, you may decide to ‘make do’ with a car that only costs $3000 down and $250 a month, put the extra $2000 into your children’s college tuition fund, hire the part-time cleaner, join a gym, and add the additional $80 a month to your charitable contributions.

The key to making this work for you is recognizing that it is not about self-denial but rather about conscious choosing and considered distribution. You’ve already decided to spend this money – you’re just adding in a final step to see if you could bring yourself more joy, prosperity, or closer to fulfilling your life’s purpose if you spent it differently.

Although many people fear that exploring spending options and alternatives will lead to an increase in expenditures, my experience in using ‘the spending question’ myself and sharing it with my clients and on training programs is that most of us actually wind up spending less money once we start using it consistently.

Perhaps even more important than the savings is that taking the extra minute or two to ask and answer this question allows us to really appreciate the money we do decide to spend and to truly value the people, things, and experiences we decide to spend it on.

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