Tag: Leftover Money

You Need Not Spend It All – Leftover Money

The third wave of personal finance is about living your best life. New books and blogs are coming out that encourage people to figure out how they want to spend their time once they have achieved financial independence. The personal finance realm is no longer solely about working super-hard for a fixed number of years in order to retire as soon as possible. This new era is focused on determining how you want to live your life once your time is your own.

Recently, a new perspective has emerged. It’s about spending your money, all of it, in order to live your best life. There’s a book called Die With Zero that encourages people to spend all their money before they shuffle off the collective mortal coil. I’ve read the book. I’ve thought about the book. My conclusion is that it’s not for me.

I fully expect that this blog post will appeal to a very slim margin of people who read it. And that’s fine. I’m okay with the fact that I’m not everyone’s cup of tea. I’m sharing my thoughts because I can’t be the only one who believes that you need not spend it all to be happy.

Am I an advocate of saving every nickel? Squirreling away every dime for an uncertain future? Hoarding currency with the sole goal of acquiring “more”?

The answer is “No”. Life is meant to be enjoyed. So many people don’t have any option other than living paycheque-to-paycheque, or by depending on charity. Not everyone has the disposable income to live life the way they would prefer. However, there are many others who do have the funds to craft the life that they truly desire. I’ve always encouraged those people to prioritize their spending in a fashion that allows them to achieve their heart’s desire and fulfill their lifelong dreams. We each only get one life, so we should do what we can to make that life as good as it can possibly be.

My position is that I don’t believe that spending all of your money is always necessary. Let’s say you’re fortunate enough to earn enough money to pay for all your needs, you’ve paid off your debts, and you can easily purchase all of your wants too. After you’re done paying for that, you’ve still got money leftover at the end of the month.

Leftover Money

Do you really need to spend the leftover money in order to acquire more happiness & joy? After all, you’re already acquiring everything you need and want. Your creditors are distant memories. You’re already living the life you want. Will spending even more money bring your more joy and happiness?

What are you supposed to do with the “leftover” money? According to DWZ, you’re supposed to just spend it on something. The premise of the book is that dying with leftover money means that you did not maximize your joy when you were alive.

That’s where I take issue with the book. In my view, you shouldn’t spend your money simply because you can. That’s wasteful. I’m also not convinced that spending money just because it’s there will bring you any greater amount of joy. There are many awesome and incredible experiences in the world. You should only pursue those that appeal to you, and you’re already smart enough to figure out what those are. Once you’ve done everything you want to do, then I’m certainly not going to tell you how to spend your remaining money.

If you’re already spending your money = on everything that you need and want, and you’re out of debt, then why do you need to spend more? Once you’ve reached the very desirable goal of living your life as you wish, then what will you achieve by spending more?

Money buys options. Of this, there is no doubt. With money, you can pay for your food, shelter, clothing, transportation, communication, entertainment, medical care, travel and various other miscellaneous things. There is no doubt that having money can make your life much, much easier. Yet, I’m still not convinced that spending money when you don’t particularly want to is a good thing.

You’re allowed to keep it.

One of the lesser-discussed aspects of money is that you don’t have to spend it. It’s true. You can have it and just keep it wherever you want – in a savings account, an investment portfolio, or in your sock drawer. Allow me to repeat it more loudly for the people at the back. You don’t have to spend your money if you don’t want to!

This is where I take issue with DWZ’s premise. I don’t think that people need to spend every penny before they die in order to have lived a great life. Once you’re out of debt, and you can spend freely on both your needs and your wants, then anything that’s leftover shouldn’t be viewed as a problem to be solved. Your fortunate financial position will still have allowed you to spend money during your lifetime pursuing your dreams and having the life you wanted. So what if there’s some money leftover?

Bottom line is this. You need not spend it all. You shouldn’t be pressured into spending money if you’re already living your dream life. It’s okay to not spend even if you have the money to do so. Live your best life and spend your money doing so in the way that makes you happiest. If you decide to increase your spending, that’s fine. And if you decide not to increase your spending, that’s fine too. The ultimate decision lies with you.

Budget? No, thank you.

I don’t use a budget. I’ve been in charge of my own money since I got my first part-time job, in a grocery store, at the age of 15. Not once since that time have I ever written out a budget in order to allocate a certain amount towards food, towards clothing, towards entertainment, towards X.

If you’ve been reading my blog for the past couple of years, you’ll know that I’m a huge fan of automatic transfers and sinking funds.

Very simply, my paycheque hits my bank account. My automatic transfers kick into high gear. Various amounts of money are dispersed among my many, many bank accounts. (Each account has a very specific purpose!) Then I spend whatever is left in my account.

For the cheap seats in the bank, I say again that I don’t use a budget.

If budgets work for you, then stop reading.

For my part, I’m not against budgets if they work for you. Everyone needs a good money-management system and budgets are one of the options available for controlling spending.

A budget simply doesn’t work for me.

See, if I’m at the grocery store and I see something that I want but which isn’t on my list, then I’m still going to buy it. I don’t want to walk past it solely because it’s not in the budget. (I might walk by it because I don’t need more calories/sodium in my diet, but that’s a different blog topic.) The same principle applies to clothing, shoes, gasoline, whatever isn’t already covered by my sinking funds.

And lest you think that money runs through my fingers like water, I promise you that there is a method to my budget-free madness.

The backbone of my money-management system lies in taking care of the Big, Important Priorities first. Once my priorities have been funded, then it doesn’t matter if I buy a couple of extra things at the grocery store or drive more than I’d intended in a given week. The most important elements of my financial life get funded first so that daily decisions don’t matter too, too much so long as I don’t go into debt. Rule number one of my system is always avoid debt!

Although I’m still fine-tuning it after all these years, the system I’ve developed for myself ensures that my medium-term and long-term priorities each get the lion’s share of my paycheque before I start doing my day-to-day spending. The impulse purchase of a pair of jeans while window-shopping at lunchtime is not going to derail my retirement dreams.

Automatic Transfers & Sinking Funds

The most important quivers in my money-management arsenal are automatic transfers and sinking funds. One of the most burdensome realities of adulting as a Single One is that all the expenses of my household are my responsibility. That means, I pay all the utilities and taxes and insurances. It also means that if I want to travel to Vancouver to enjoy the cherry blossoms in the spring, then I’m the one who has to scrounge up the money to do so.

In the pre-COVID19 days, I had a far more active social life that included concerts, travel, and meals with friends. Those activities have been curtailed for now, but I’m sure that I’ll get to enjoy most of them again.

My point is that I rely on automatic transfers and sinking funds to pay for the expenses of my life. For example, I pay my insurance premiums on a yearly basis. I have a sinking fund for that particular bill. I take the amount I paid last year, increase it by 10%, then divide that number by my annual number of paycheques. The final amount is then automatically sent to my sinking fund every time I get paid. When the premium due date rolls around, I’m not left wondering where to come up with several thousand dollars.

While I realize that some people pay their insurance monthly, I abhor the idea of anyone other than me withdrawing money form my account. I’d prefer not to grant access to my bank accounts to anyone else.

I have sinking funds for all of the following:

  • insurance premiums;
  • property taxes;
  • annual vacations;
  • birthday and celebration gifts;
  • Registered Retirement Savings Plan contributions;
  • Tax Free Savings Plan contributions;
  • renovations;
  • MISC.

Yes, I set aside a segment of my paycheque for miscellaneous stuff. I might decide to do something fun and unexpected, so I need to have a bit of money tucked aside for this unanticipated spending. Sometimes the MISC-money has to be spent on not-fun stuff, like a new pair of glasses – they’re quite necessary but they won’t be cheap.

Leftover money gets spent…

Yes, that’s right. Think of my automatic system as a blackjack dealer in a casino. My sinking funds are the players. The deck is my paycheque. Once the system has dealt money to each of my sinking funds, I’m free to spend whatever’s leftover however I want.

Again, I don’t use a budget. The leftover money is spent on groceries, clothes, gasoline, liquor, dining out, whatever I want. What I love best about my money-management system is that I can spend however I want in the very short-term because my medium-term and long-term goals are also being met. It’s the best of both worlds for me.

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Weekly Tip: Consider following the 50-30-20 rule for your money, which I first learned about in the book All Your Worth written by Elizabeth Warren and Amelia Warren Tyagi. In a nutshell, the rule says that 50% of your net income is spent on your necessities, otherwise known as MUST-HAVE’s. Then next 30% is spent on non-necessities, the Want-to-Have’s. The final 20% goes straight into Savings and Investing.