Re­ally OK to spend money on your­self

Ways to walk the line be­tween fru­gal­ity and big spenders

The Peterborough Examiner - - LIFE - LIZ WE­STON THE ASSOCIATED PRESS Liz We­ston is a cer­ti­fied fi­nan­cial plan­ner and colum­nist at NerdWal­let. This col­umn was pro­vided to The Associated Press by the per­sonal fi­nance web­site NerdWal­let.

Peo­ple who spend too much out­num­ber, by far, those who spend too lit­tle. But the meth­ods that ther­a­pists and fi­nan­cial plan­ners use to help “un­der­spenders” can guide the rest of us about when it’s OK to splurge and when we should re­sist.

Chronic un­der­spenders can be so ter­ri­fied about run­ning out of money that they put off health care, ig­nore needed home re­pairs or de­scend into hoard­ing, says fi­nan­cial plan­ner Rick Kahler of Rapid City, S.D. Fram­ing cer­tain ex­pen­di­tures as an in­vest­ment and cre­at­ing a plan that helps them see how much money they can spend with­out caus­ing fi­nan­cial ruin can ease their dis­tress, he says.

“‘Spend’ is not a good word to a

Have a bud­get

You don’t want to splurge one month and wind up short on rent the next. Find out where your money is go­ing now and what up­com­ing bills you need to cover. Your just-for-fun spend­ing will come out of the in­come that’s not al­ready spo­ken for.

De­cide how to in­vest in your­self

Ex­pe­ri­ences tend to give us more last­ing plea­sure than things, but the right pur­chases also can be an in­vest­ment in hap­pi­ness. If you’re learn­ing to play music, for ex­am­ple, up­grad­ing your in­stru­ment can con­trib­ute to your well-be­ing ev­ery time you lay hands on it. If you feel

fru­gal per­son,” says Kahler, au­thor of Con­scious Fi­nance: Un­cover Your Hid­den Money Be­liefs and Trans­form the Role of Money in

Your Life. “It con­notes waste.” Plan­ning also helps those who are try­ing to han­dle money bet­ter by pay­ing off debt, build­ing sav­ings and in­vest­ing for re­tire­ment. High-qual­ity ex­pe­ri­ences or pur­chases that give last­ing plea­sure can stave off burnout and “fru­gal fa­tigue” that might oth­er­wise cause peo­ple to aban­don their money goals.

Here’s how to walk the line: guilty spend­ing on plea­sur­able things, you may need some prac­tice. Psy­chol­o­gist and fi­nan­cial plan­ner Brad Klontz tells his worka­holic clients to get mas­sages so they can be ex­posed to what it feels like to in­dulge.

Save the full amount be­fore you spend on fun

This one habit can stave off a world of re­gret. If it helps, you can set up a ded­i­cated sav­ings ac­count. On­line banks and some credit unions let you set up mul­ti­ple sav­ings sub-ac­counts that you can name, so you can have ones for “va­ca­tions,” “gui­tar,” “new wardrobe” or what­ever else you de­sire.

Don’t wait un­til you’ve ar­rived

Pay­ing off credit cards and build­ing emer­gency sav­ings can take years. In­vest­ing enough for re­tire­ment will take decades. And you only live once. As long as you’re on track with your goals, you should be able to af­ford the oc­ca­sional splurge. What does it mean to be on track? Gen­er­ally, it means that you’re sav­ing enough to re­place roughly 70 per cent of your in­come in re­tire­ment and that you’re sched­uled to pay off all your toxic debt, such as credit cards and pay­day loans, within the next five years, while mak­ing all re­quired pay­ments on any mort­gages, auto loans and stu­dent loans. If you’re not on track, your splurges should be on the smaller side un­til you’ve got a bet­ter han­dle on your money. Not sure? Con­sider a con­sul­ta­tion with a fee-only fi­nan­cial plan­ner who can give you an ob­jec­tive as­sess­ment, says Klontz, co-au­thor of Mind over Money: Over­com­ing the Money Dis­or­ders That Threaten Our Fi­nan­cial Health.

Fi­nance care­fully

Even if you know bet­ter than to fi­nance the fun stuff, you can find your­self over­spend­ing when bor­row­ing for big pur­chases such as cars or homes. Bor­rowed money feels less real than cash in your wal­let, so you may be more tempted to spend on lux­ury add-ons. One way to make sure you can re­ally af­ford what you’re buy­ing is to first stick to con­ser­va­tive loans, which means a fixed-rate mort­gage that lasts 30 years or less, or an auto loan that lasts four years or less. Then add the ex­pected pay­ment to all your cur­rent “must have” ex­penses: shel­ter, food, util­i­ties, trans­porta­tion, in­surance, child care and other min­i­mum loan pay­ments. If the ex­pected to­tal is 50 per cent or less of your af­ter-tax in­come, you can prob­a­bly af­ford the new pay­ment.

RICHARD DREW/AP

Pay­ing off credit cards and build­ing emer­gency sav­ings can take years. In­vest­ing enough for re­tire­ment will take decades. And you only live once.

DY­LAN ENTELIS/AP

Liz We­ston, a colum­nist for per­sonal fi­nance web­site NerdWal­let.com

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