Read This Before You Spend The Big Bucks

This is a guest post from MD of Studenomics– a personal finance blog that makes money talk fun for 20-somethings.

We all hate to be told that we can’t do something. Whenever I’ve discussed ways to save money in your everyday life, my readers would get turned off.

When I would discuss strategies on how to cut back without giving up, my readers responded favorably.

Today, I wanted to try something different with the younger readers of Frugal Dad. I wanted to tell you to go ahead and spend the big bucks...BUT. Yes there’s a catch. Actually there’s a few catches (isn’t there always?):

You need to make big money before you spend big money.

You need to ensure that you’re at a stage in life where you’re earning a decent chunk of change if you want to buy that new Infiniti G35. Many college graduates are guilty of extreme lifestyle inflation. If your big spending results in you saving less than you would like to, it’s still somewhat justifiable. If your big spending is paid for by credit card, then you’re headed towards a financial disaster. Even worse is when low-income earners want to spend the big bucks before they’ve even reached the stage where their income justifies it.

The other day I heard yet again another story of a friend that just graduated college, started making a little bit of money, and is already living an extravagant lifestyle. Instead of saving up a buffer in his savings account, he decided to spend 15 grand for two people to go to Australia. I’m all for long term travel and working abroad, but, I’m opposed to spending the big bucks before you’ve saved any bucks or have earned any money to justify your spending.

Where are you cutting back?

If you want to allocate a lot of your income towards one spending area, it’s advisable that you cut back in other areas. I love to go out with friends. Instead of forcing myself to stay in or making my life miserable, I find ways to cut back on other areas. I try to prepare as much of my own food as possible. I try not to indulge in the newest fashion trends. I truly believe that uniforms don’t win games. So I would rather not jump on the newest trends just so that I can have more money for going out with friends.

The key point here is that if you want to spend big money on a specific area, you need to try to cut back somewhere else. If you don’t then you’ll never have any money leftover. Even worse, you might end up in massive amounts of debt. The last thing you want to happen early on in your working career is to rack up debt. The debt will just prevent you from moving on with your life (moving out, getting married, etc.).

You must plan your spending

I’m not here to judge anyone. I’ve spent more money on trips the last few years than celebrities do on plastic surgery (well not really). The reason that I get away with spending the big bucks here is because I plan ahead FAR in advance. I recommend that you find the best online banking account for your situation. This way you can plan all of your expenditures and know where your money is going.

Instead of always stressing about your money and trying to figure out where your hard earned money is being spent, plan ahead. I try to keep a few sub-accounts in my online bank account with ING Direct. This way I can roughly plan my spending for the short term and the long term.

Admit your weak areas.

We all have areas where our spending is horrible. There’s no point to lie about it. Just admit to it and try to slowly work on it over time. The quick fix almost never works (just like dieting) and you end up worse off in the end. If you acknowledge that you spend too much money on eating out, you can begin to improve your spending in this area. There’s no point to deny or to seek a quick fix. Both options will hurt your financial future. If you get realistic and serious about your money management skills, then you’ll eventually notice a big difference in your bank account and your quality of life.

There you go guys. A personal finance article giving you permission to spend the big bucks. What do you think? Where do you spend the big bucks? How do you plan your spending?

Comments

  1. Right now I am spending big bucks on the purchase of a home. The down payment is something I have saved for and while the mortgage rates are low I want to take advantage of getting more house for my money. The caveat is drastic cuts in spending in other areas. I traded in my car for an older model to reduce payments, am diligently clipping coupons and looking for deals at the grocery store (a major expense for my family), and finding frugal entertainment options instead of high priced theatre visits and dinners out.
    I really liked this posts because it goes to show you can have the things you want if you save and spend wisely!

  2. I’d also add that you need to know where your money is going. It’s fine to spend as long as you’re 100% aware of what you’re spending it on. I track all my spending and have it divided out into categories. I have a budget for each category so I know exactly how much I spend each month. This is conscious spending–and it allows me to live below my means while still buying things I want.

    -Erica

  3. I agree it’s all about prioritizing and figuring out what’s important to you. Acquiring all the traditional indicators of success (big house, fancy car, the latest in electronic toys, etc) aren’t our priorities and to buy those things would be a complete waste of the financial resources available.

    We want to retire in our late 50′s and still take a major trip every other year with our kids in the meantime. With that in mind, we choose to cut virtually everything else to the minimum. We buy used vehicles with cash, shop at thrift stores, meal plan and pack our lunches, rarely eat out, make extensive use of the library for books and movies. We haven’t had cable in over 20yrs and couldn’t care less. On the other hand we’re on track to retire in 2020 at 56 & 59. Our last trip was a month with the kids in Europe (Italy, Germany, Greece) and cost about $12k. Yes, a lot for a holiday, but something we planned for and enjoyed all the more because we’d looked forward to it and it’s our one big splurge. Others would think that was a total waste of money and if travel isn’t important to them, then they would be right. I look at their giant car payments and trendy wadrobes and think the same thing. For me, those things would be a complete waste – I wouldn’t appreciate them more than the more cost effective alternative.

  4. We spend the big bucks on vacation and hobby traveling ($2000-$3000 a year). We also splurge a lot on big meals for potluck parties and eating out every week (like $6000 a year in groceries and restaurants). And everybody sees the $1560 and $400 we spend every year on a housekeeper and lawn care as excessive, but we enjoy it.

    We cut back on everything that doesn’t matter as much to us, so we can afford to live on 50%, save 30-40%, and have fun with the rest. :-)

    • I love my vacations as well. From afar it’s easy to judge a person that travels a lot and it’s easy to think that they don’t manage their finances well. The thing is that conscious spending allows one to travel more (or indulge more in what it is that they enjoy).

  5. Here we spend a lot on our summer holiday, every year we rent a house with a private swimming pool in the South of France. The children love it, and although they’re teenagers/young adults they still look forward to go on holiday with us. To pay for it we only go out for dinner on birthdays and in the weekends we don’t go out to theatres, cinema’s or concerts.

  6. It really depends on how you are spending that big money. If you are living extravagantly and far outside you means then yes, you will be broker than a dropped china plate in less than a year.

    However, if you have a good level of financial intelligence, you can be leveraging large sums of money and using good debt to make a massive amount of money with reduced risk.

    Living small is not the way to become wealthy, knowing how money works and investing large sums intelligently is.

    • I really love this quote; “Living small is not the way to become wealthy, knowing how money works and investing large sums intelligently is.”

      This is so true. We often feel that cutting back on everything is the best strategy for accumulating wealth. Too rarely do we look at how money works and ways we can intelligently invest our money.

  7. What counts as earning big bucks? I make six figures, am single, have no debt, and still don’t feel comfortable buying a nice car. In fact, I still drive my ’99 toyota that has a broken air conditioning system. My dad often tells me over the phone that I should get a new car and I just laugh at him… my car still works so why replace it? I’d rather save the money and watch my networth grow. My happiness is not defined by the car I drive — though I’d love to one day make enough to buy a slightly nicer car. How much do you think one needs to make before they can make those big purchases?

  8. There are lots of reasons people spend when they get right out of school. Many are finally making a decent salary and think now they’re ready for the good life.

    Unfortunately, all those “how much car payment” and “how much house can you afford” calculators are not realistic. (At least not when i do the math.)

    I definitely think many people want a life as good as their parent’s right off the bat, even though it probably took decades to get to that place. People forget it takes a long time to get ahead on the financial treadmill. I am just now feeling like I can save a good amount after 15 years of being out of school….and I was always a saver.

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