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The Power Of Deliberate Spending

April 21, 2024

summer fruit

Many of you are focused savers.

You appreciate frugality and the wise use of money for its own sake.

I’m in that camp too.

And when you’ve got big goals like financial independence and creating freedom in your life, that makes perfect sense.

But I’ve also come to realise that some of us can get a little too passionate about it.  To the point where we begin to think in black and white: saving good, spending bad.

And while that can be a useful framework when nailing down your costs to reach FIRE faster, it’s not the optimal approach.

In this article, I want to talk about Deliberate Spending.  Where not only do you appreciate your dollars, but you are very focused and intentional about what you spend on and why.

 

The Saving/Spending Spectrum

For a number of years, my core focus was on growing my income and assets while shrinking my expenses as much as possible.  And while that was incredibly effective, I was also missing the bigger picture.

Zero expenses – as cool as the idea sounds to many of us – isn’t actually the goal here.

So what is?  Spending enough to have a great life while wasting as little as possible.

That may sound obvious to some of you, and wildly contradictive to others.  But it highlights something important.

There’s a constant tug of war, and a never-ending game of tradeoffs being played.

If our spending gets too high, we’re probably wasting money and therefore missing out on the benefits of saving and investing.

If our spending gets too low, we’re probably hoarding money and therefore missing out on the enjoyment and benefits that higher spending can bring.

Before we move on, I want to be clear: you can be perfectly happy spending very little and completely miserable spending a lot.  It’s not a math equation.  But obviously I’m speaking in generalities so I hope you can see what I’m getting at.

 

Making financial decisions

How do we know what constitutes a ‘waste’ of money?

You’re probably expecting me to sit here and list a bunch of things I consider to be wasteful.

But that wouldn’t be helpful.  Why?  Because what one person considers waste, another person values.

So here’s my real definition of wasteful spending: Unintentional or thoughtless spending on things you don’t really care about.

That can be one-off purchases.  It can be ongoing expenses we’ve added without thinking about it.  Or it could be the ratcheting up of spending – AKA lifestyle creep – simply because that’s what everyone does.

To me, this is the opposite of Deliberate Spending.  And because it’s not deliberate, there’s no real benefit or purpose behind it.  It’s missing the, “I’m doing this because it matters to me for these reasons” factor.

So how do we balance this elusive goal of a great life while minimising waste?  Getting clear on what you’re happy to spend on and why.

Some things are worth it and you say, “fuck it.”  Maybe for you that’s travel.  Or socialising.  For others it could be home renovation, hiring a personal trainer, or education courses.

But maybe it’s something else.  While these things might be valuable to others, they might not be valuable to you right now.

The interesting thing is, over time our priorities change.  Our desired lifestyle changes.  Our wealth changes.  Our values and who we are morph over time.  That means what you spend on ten or twenty years from now will probably look different from today.  That’s hard to imagine, but it’s likely to be true.

 

The benefits of Deliberate Spending

There are lots of simple reasons why I like the idea of Deliberate Spending:

Psychological clarity.  When you get clear on what you want, and follow through, your actions are congruent with your emotions and goals.   That gives you a sense of certainty and also avoids the stress of wondering if you’re doing it right.  Because you’ve thought about it.

Align your spending with your values.   When you use your money in a way that aligns with what you care about, you’ll naturally be happier about your personal finances as a whole.

Greater control.  The intentional or deliberate approach makes you feel way more in control of your finances.  And when you have that sense of control, you feel more motivated and make better decisions, creating an upwards spiral of success.

Improved benefits, reduced waste.  Deliberate spending lets you harness the 80/20 rule I spoke about here.  You can tailor your spending around the few things that will really move the needle in terms of your life satisfaction, and ignore the rest.

Out of all the ways to manage your money, Deliberate Spending takes the most up-front time.  But I also think it’s worth it.

It’s a mindful approach to personal finance.  Out of the four main money management strategies I highlighted in my book, it’s the one I rank highest.

The other approaches work too, but sometimes it seems mentally lazy and/or overly rigid.  They work great for beginners, but are less useful for those who are more financially savvy.

By the way, the other money management approaches I’m referring to are: budgeting, bucketing, and paying yourself first.

Deliberate Spending ensures your financial decisions are in harmony with your values, priorities, and how you want to live.

 

Deliberate Spending in my own life

To string it all together, here’s a little summary of my own experience with Mindful or Deliberate Spending.

And notice how it’s not a stagnant basket of yes/no decisions.  It flows and fluctuates along with the situation, tastes and priorities.

In my teens… (Broke days)…

Spent mostly on:  takeaway food, drinking, new clothes, first car.

What I didn’t spend on:  travel, housing, investments.

In my 20s… (FI Journey)…

Spent mostly on:  my dog, investments, some travel (early 20s).

What I didn’t spend on:  drinking, cafe/restaurants, housing, clothes, vehicles.

There was a big switch here as I got really clear on what mattered to me (FI) and aligned my finances accordingly.  Other than my dog and a few trips, I was very happy living a simple life to prioritise my goals.

In my 30s… (FI life so far)…

So far I’ve spent more on housing, cafe/restaurants, and a ridiculous new car 😅

Importantly, none of this is accidental.  Every part of it is Deliberate Spending.

And in the future, I can see spending choices changing again.  Now that we (unfortunately) don’t have a dog, that spending is gone, but there’s a strong chance we spend more on travel.

Alongside this approach is a conscious effort to NOT spend on things that aren’t important.   Optimising our other expenses in the following ways: having a home gym, watching our grocery spend, minimising subscriptions, not upgrading technology/furniture/appliances for the sake of it, and a general habit of not buying anything we don’t need.

The simple act of NOT spending money on what matters less is what enables you to allocate more time and money to things that ARE important to you (including buying your own freedom!).

 

The silliest argument in personal finance

While we’re on the topic of spending and saving, I want to highlight a fundamental misunderstanding in the personal finance community.

It’s an ongoing disagreement between two camps.  Neither camp seems to realise the whole thing is a ridiculous argument.  They are actually arguing about different things, or as Morgan Housel might say, playing different games.

It’s the idea of focusing on big dollar amounts and ignoring small expenses.  

Some suggest a $10 per week expense is so trivial that it won’t make much difference to your wealth over the long term.

They’ll say, “look at these frugal idiots desperately scraping together a few pennies to be a bit richer when they’re 87 years old.”

On a strictly mathematical basis, they’re correct.  There are far better things to focus on.  But that’s not why those small expenses matter.

It’s because that $10 amounts to $520 per year.  To generate that cashflow each year requires $10,000 of investments (keeping the numbers simple).

By being more Deliberate about which expenses we keep, we can cut a lot of these $10 (or $20 or $50) expenses.  Each increment is equivalent to $10,000.  I ranted about this a long time ago.

Each increment is $10,000 less we need for freedom.  That’s why it matters.  It’s not the $10, it’s what the $10 requires.

Finding ten tiny ways to save money isn’t $100.  It’s $100,000 closer to being financially independent.  No, it’s not the first place you should look for savings.  By definition it’s the last place.  But it still matters.

There are big dollar consequences at stake for each of our decisions.  And that’s where the ultimate misunderstanding in personal finance comes from…

One camp is focused on long term wealth while remaining at work and/or running a business with a 25-40 year timeframe.  The other is focused on creating complete freedom with a 5-20 year timeframe.

One is in Long Term Wealth Mode.  They’re looking for security, enjoyment, and steady accumulation.  The other is in Financial Independence Mode.  They’re looking for freedom, control and flexibility.

We make fun of each other’s approach, but we’re actually talking about different things.  By the way, after FI, you can/will earn surplus income and you can then spend more and move towards Long Term Wealth Mode if you wish.

Because then those small amount don’t mean as much.  It’s just you spending surplus cash on stuff you enjoy, and it no longer affects your freedom.  Win, win!

 

How to start with Deliberate Spending

Take a look at the entirety of your spending.  You have been tracking it, haven’t you?

Seeing it all laid bare in front of you can be really eye opening.  It’s a great exercise if you’ve never done it.

Look at the categories and the amounts.  Are you happy with it?  Does it line up with what’s important to you?  Or are there areas where cash is leaking out and you aren’t really getting much benefit?

Or maybe you have a different problem.  You say one of your biggest priorities is family, yet you haven’t been overseas to visit them in 5 years because of your goals.  Maybe it’s time to allocate a little more in that area?

See, Deliberate Spending works both ways.  You can align your finances with your goals and values to spend less, but also to spend more if the situation calls for it.

Or you’re in the happy situation of having solid wealth and a growing surplus.  This could mean you give more to charity, help family members, visit new places, or buy healthier food.

So, does your spending feel intentional and considered?  Or does it feel random and impulsive?  That’s a good sign you want to re-evaluate and get clear on your priorities.

For the next few weeks, really think about each purchase before you make it.  Watch your bank account like a hawk and see the payments coming out.

You don’t have to do this forever.  But building the habit of thoughtfulness goes a long way.   Before long, it will become an instantaneous and effortless habit.  You grow to know, intuitively, what’s worth spending money on and what isn’t, based on your current priorities and unfolding situation.

 

Final thoughts

I know all this might sound strange.  Most people say to take a methodical approach to your finances.  Put X percentage here, Y percentage here, and do whatever you like with the rest.

But I find the Deliberate approach to be more powerful and flexible, especially when you have big financial goals.  Deliberate Spending is not about deliberately spending money for the sake of it.  It’s about being thoughtful about where your money goes.

Your spending will likely look different from other folks.  That’s exactly the way it should be.  If you’re truly intentional about it, your own priorities, values, and even personality will show in how you spend money.

It’s all about maximising fulfilment while minimising waste.  Or, said in a much nerdier way: values-based resource allocation 😁

Of course, you can do the same with your TIME too.  Time is simply another resource.  In fact, I’d say it’s even more important to align your time with what you care about.

And at the end of the day, that’s what financial independence is all about!  Being able to reallocate our most precious resource – time – in ways which enhance our lives and lead to greater long term wellbeing.


Thanks for reading! 

Here are some resources you may find useful on your wealth building journey:

My book: After 5 years and hundreds of articles and podcasts, I’ve now distilled everything down into an easy to follow book.  Designed as a complete roadmap to achieving financial independence and retiring early in Australia.  Available in paperback, ebook, and audio.

Mortgage broker: My personal broker of 10 years is More Than Mortgages If you’d like help refinancing or getting the right loan for your needs, get in touch with MTM. They have fantastic reviews for a reason. I’ve worked with them for 10 years and they’ve been excellent.

Sharesight: A great portfolio tracking tool for share investors, and free for up to 10 holdings.  It tracks all dividends, franking credits and capital gains, which is incredibly helpful at tax time.  Saves me a lot of time and headache!

Just so you know, if you choose to use these resources, this blog may receive a financial benefit at no extra cost to you.  Thanks in advance if you do.  And to be clear, I only ever recommend things I use myself and genuinely believe in.

11 Comments

11 Replies to “The Power Of Deliberate Spending”

  1. As the old saying goes. If you look after the pennies the pounds will look after themselves. The book the latte factor has this great calculator that allows you to see how that few dollars a day over a working life time can make a huge difference to that available cash to have for investment. try this link and see how a few dollars can become thousands. I showed a team member of mine how that latte a day and muffin was costing her $80,000 over her working life. She didn’t believe me so i showed her this calculator.
    https://www.financialmentor.com/calculator/latte-factor-calculator
    the book is a great read..https://www.simonandschuster.com.au/books/The-Latte-Factor/David-Bach/9781982120245

  2. ‘Deliberate spending’ is a great way to put it, and is something I’ve been practicing for years. I don’t consider myself to be a FIREy but… it’s funny how I always have money to spend on the really simple things I enjoy while living a pretty simple lifestyle.

    And I think what’s most valuable to me is just that inner confidence that comes with always having ‘enough’ to enjoy my life. I’m sure some people look at me and scratch their heads, and can’t reconcile how a) I always seem to have enough to do what I want, and simultaneously b) I don’t drive a new car, subscribe to Netflix, wear new clothes, have an up-to-date smart phone, etc. It’s all about priorities, right?

    1. Exactly Martin, you’re a perfect example.

      It’s all about THINKING about what we’re doing and why. If it aligns with what matters to us, then great. But not everything is important, so we need to carefully, deliberately, decide what is. In doing so, we get the benefits of stronger finances, mental clarity, and that sense of independence.

  3. Hi Dave – I stopped looking at this as being”frugal” but by living a “minimalist” life. So I don’t waste money on junk I don’t need but have no problem spending big on a high quality thing or experience I know I will love or remember for years. An example for me is a preowned 2001 Omega Seamaster watch I spent $3,000 on in 2018. I researched a dozen watches for months to zero in on it. Some would probably throw up in a bucket spending $3K on watch! I wear it most days and still love it as much now as the day it arrived. So, I guess this is deliberate spending.

    Lyn Alden says it well:

    I don’t like frugality, and am not frugal. Instead, I believe in minimalism.

    I spend plenty of money on high quality, ethical, and sustainable food, without caring about the price tag. I travel to other continents and spend time in luxury hotels, and those experiences are some of the best times in my life.

    But my car? I don’t care about it at all other than it being reliable and safe. It’s cheap and I’ll run it into the ground before buying another one. I have no cable television. My apartment is so sparse that my landlord once asked if I even live in it, and assumed that I’m always on business travel or something.

    That’s how I like it, because it lets me focus.

    Being frugal and pinching pennies can be really boring and unsatisfying as you focus on what you lack. But simplifying the possessions around you, traveling lightly through life, and spending your time and energy on projects that interest you (and that often produce money), can be incredibly satisfying.

    The main reason I avoid buying things is that I just think of how much time and energy they’ll drain from me, and how distracting they’ll be. I’m allergic to clutter.

    Everyone’s different, but this works for a lot of people. Spend liberally on what you love, and cut ruthlessly what you don’t.

    1. Nicely said, and good examples. It’s really about Minimal waste. If something is worth it to you, then it’s worth it, end of story.

      Too many of us just assume we need it all, never bothering to consciously decide what matters and what doesn’t. Easier to just do as others do and never think about it. Then we’re left with a house full of shit, stuff we don’t even care for, and an empty bank account being drained by expenses that have never been examined.

  4. Money is what you spend, Value is what you get. When the value is aligned to your expectations – it’s a match made in heaven!

  5. I went a little too extreme early on ( 20 years ago), When buying birthday/Christmas gifts I would try to get something that I was able to claim a tax deduction. When my family questioned why I gave my 14y.o. niece a printer with extra ink cartridges I knew I was well and truly over the line. But in those early days, we set ourselves up so that at age 49 we are well and truly retired and able to do pretty much what we like.
    Compounding is your friend. Invest early and invest often. You will get there before you know it!!

    1. Haha wow that’s next level, tax deductible gifts only 😂 It really is possible to get carried away, but it’s a learning experience, about ourselves as much as everything else. Good to hear it all worked out fantastically well!

  6. Great Article Dave.
    Having big financial goals and using deliberate spending to align with them makes sense to me. Most people I know in their 40s don’t have financial goals. But they do have new cars, frequent holidays and designer sneakers. And at the ripe old age of 40-something they still spend big but get worried when their shifts are cut at work. They call me a tight arse but I have no financial worries.

    Building a habit of thoughtfulness requires thought. Unfortunately, even with access to a Latte Calculator, most people will probably never get it. 🙂

    1. So they do have financial goals, but they’re all short term and spending related! 😅

      It’s amazing how quick regular folks are to criticise the save/invest mentality when it’s just a different set of choices that you’re happy with. I have no problem with the spend-everything-you-earn approach, as long as I don’t hear a single complaint about life being hard or not having enough money or the pension not being enough. That’s rarely the case though!

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