I get this question a lot because couples often wonder what is acceptable to spend on different purchases. It’s natural for people to compare themselves to others, but the problem is you do not know everything going on in their lives. They might make way more or way less income than you think. Spending is not a sign of wealth! Most people think a person driving a $60,000 vehicle with a $500,000 house is wealthy, but all it really shows is that they know how to spend money, not that they necessarily have money. So, here are a few guidelines for knowing how much to spend:
First of all, spend less than you earn
I know this sounds really obvious, but most people (in the U.S. anyway) don’t actually put it into practice. If they did, we wouldn’t have the debt problem we have today. That is how debt happens. You spend more than what you make and use credit cards, home equity loans, payday loans, etc. to pay for it. So, the best way to determine if you should spend money or not is to ask yourselves if you have the money in the first place. Not if you can afford the payment, but if you can afford it at all.
Spend less than you make by doing a budget
Unfortunately, many people do not have a clear picture of what they make. If I asked you how much money you make, you could probably tell me $50,000 per year. When I ask what your monthly take-home pay is, that’s a different story. It often amazes me how many deductions people have taken out of their paychecks when I work with them as clients. The work cafeteria, short term disability insurance, double or triple the amount that should be taken out for federal income tax, and deferred compensation are just a few of the things being taken out of paychecks. The crazy thing is, most people don’t even realize or know about these things until someone else points them out. The point is to know exactly the amount of money you have coming in each month. That way, you know what amount of money to budget so that you don’t overspend.
Set limits and stick to them
Once you know the amount of money you have to work with, you and your spouse must determine how much is reasonable to spend on each category. Is $50 each per month enough for blow money to spend on whatever you want? Maybe $100 each per month is more reasonable. The same goes for other categories. Your income and your fixed expenses (mortgage, taxes, etc.) will help determine the amounts. The most important part is to set those limits and then stick to them. A budget on paper is worthless unless you actually live by it!
In case I haven’t mentioned it yet, don’t spend more than you make. It really is that simple. Is it easy to do in our culture? Absolutely not. But it is simple. Follow the above guidelines and you won’t have to guess on what you should spend, but rather you will know. Tell your money where to go instead of wondering where it went!
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