Fiona Lee is a personal finance writer for ReadyForZero. This is her first post here! She is a frugalista who loves discovering new ways to save money, especially in expensive cities.
When I first started budgeting, I had an idealistic view about my spending. I would become a money monk! All unnecessary items were cut, and so was anything that was remotely fun: clothes, cosmetics, or pastries from my favorite bakery. There were times when I even cut home supplies.
The problem with being a money monk is that it was unrealistic. My actual spending always included things I hadn’t planned for at the beginning of the month. The pattern was very similar over time—I would usually crack around the middle of the month, exhausted by all this personal austerity. A single purchase of a coffee or pastry would break the chain of good habits, triggering feelings of guilt and shame. Bigger purchases could then be justified, and by the end of the month the numbers on my budget would look at me reproachfully, and I felt guilty and anxious for spending so much.
After three months, I was tired of my own overspending and the guilt cycle. Instead, I came up with a more realistic way of dealing with my discretionary spending: I gave myself a monthly allowance of $150 to use any way I liked.
An allowance can easily fit into anyone’s monthly budget. Look over your last few months of discretionary spending and figure out an amount that works for you. Once you know how much you can spend, use the tips below to make your allowance a successful financial tool:
1. Take your allowance out in cash. It’s easy to make impulse purchases with a debit or credit card because you aren’t using cold, hard cash. Use cash and it’s clear when funds are running low. Once it’s gone, it’s gone. Seeing the money dwindle away also forces you to make choices—do you really want to buy that coffee now, or save it for an even nicer treat later?
2. Keep the allowance separate. If you keep your allowance physically separate from your regular funds in your wallet, then it’s easier to track and reserve for discretionary spending. For instance, I keep mine in a coin purse instead of my wallet. This method has the added, and unexpected, benefit of allowing the allowance to be overlooked during busy times. When I was too busy to spend money because of work, I completely forgot about my allowance and ended up with a tidy amount to put towards my credit card balance.
3. Don’t track what you spend using your allowance. This may sound counterintuitive, but if you track what you spend with your allowance, then it becomes associated with the chore of tracking your spending with the regular budget. The allowance is a psychological tool that allows you to still have fun and remove the need to rebel against your own system.
4. Use it to reward yourself! Instead of beating yourself up for impulse spending, use your allowance to reward yourself with the progress that you are making. If I’d had a particularly good week of financial discipline, I would reward myself with a pastry or gelato—and I was still on budget. Those small celebrations of financial accomplishments were important in helping me stay focused on my goals.
Having an allowance helps people save because it removes the emotions around impulse spending. Instead, discretionary spending is now built into the budget. If there are funds left in the allowance at the end of the month, put it towards your debt so it becomes another reward.
Financial discipline is not a punishment, but we often think about money and budgeting in very negative ways—especially when we’re trying to pay off debt. In fact, financial discipline is synonymous with depriving ourselves of something fun, just like a diet. An allowance allows us to reframe that conversation so that the reward factor is involved, and helps us stay on track to reach our financial goals.
Image credit: Goodday