Updated on 07.14.09

Rule #10: Plan Ahead Every Time You Spend.

Trent Hamm

14 money rulesA reader asked me if I could break down my ideas into a handful of principles. After some careful thought, I came up with a list of fourteen basic “rules” that summarize my money and life philosophy. I’ll be presenting these as a weekly series.

Whenever some people see statements like the one above, they roll their eyes. “Your life must be borrring if you have to plan ahead every time you spend” is a typical refrain.

The big problem with that thinking is that it makes an incredibly false substitution. Planning ahead does not mean the elimination of spontaneity in life; in fact, once you get into the routine, it can often feel more spontaneous because unplanned chaotic spontaneity is no longer the norm.

And it’s that unplanned chaotic spontaneity that gets people in deep spending trouble.

It’s easy to apply the principle of planning ahead every time you spend for the big purchases. For most of us, saving and planning for houses and cars and vacations is completely normal and reasonable behavior. We don’t want to go on a vacation that costs thousands of dollars without some planning, after all, and we certainly see the logic in planning for such purchases.

Where this begins to break down for many people is when the purchases get smaller. A cell phone plan might get some research from some, or it might be completely impulsive, even though fifteen minutes of online research can save you hundreds a year. Christmas gifts are often bought in minimal time, even though you can often find better gifts for the same price or better deals on the gifts you bought with just a bit of footwork and planning. These things add up – the ten minutes spent planning for such a purchase might net you $50 in savings, which is well worth it for many people.

For purchases more than $100 or so (over their lifetime), just spend five minutes making sure you’re getting a good deal and that you can adequately and easily afford the item. If you’re convinced, use the thirty day rule. Put that purchase on hold for thirty days. If you still want it after thirty days and you can afford it, go for it.

Where the idea of planning ahead really breaks down, though, is with the small impulse buys. Dinner at a local restaurant. A movie. A new DVD at the store. A new shirt. A new pair of pants. A ticket to a baseball game.

Quite often, these items are bought quickly with almost no forethought. Sure, it can be fun to do something spontaneously, but that spontaneity can drown you.

Let’s say you go shopping with a friend. On a whim, you buy a new dress, then the two of you go out to dinner together and head out to a movie. For many people, this is a nice, fun evening.

The worrisome side of it comes later. You go home, look through your credit card statements, and realize that the $50 you spent tonight – previously unaccounted for – has now completely tapped you out. You haven’t got enough money to cover the electric bill. So you pay it late – and there’s a late fee on next month’s bill. But by then you’ve moved on to another completely unplanned expense.

Wariety and spontaneity are two of the spices of life, but it’s foolish to let those spices cost you more than they should.

Instead, plan ahead a little for those spontaneous moments. Each month, put $100 in cash in your wallet and let that be your “spontaneous” money for the month. You can do whatever you want with it and it’s fine because you planned for that amount. An impromptu moment doesn’t mean that you’re going to be late on a bill at all.

When that $100 is gone, it’s gone. But it’s no big deal – just wait until the calendar turns and you can refuel.

Obviously, you can adjust that amount to whatever you’d like – more in some situations, less in others. The reason for doing it is simple: it allows you to be spontaneous without being destructively chaotic with your finances.

Some people might wisely see this as the rudiments of a budget – and they’re right. This is simple budgeting at its finest. By putting that cash in your wallet, you’re assigning an amount to your spontaneous spending. The amount that remains in your checking account is handled differently – you pay your bills and your savings with it.

One big danger when people follow this idea: they put their $100 in their wallet and then find it’s gone by the ninth of the month. Then they spend twenty one days miserable, thinking that this plan is stupid or talking themselves into getting more out of their checking account.

Don’t. Live out the month. Then, sit down at the end of the month and take a serious look at the month as a whole. Did you give up anything vital during those twenty one days? Did you do anything during those nine days that didn’t really add any value to your life?

You might find that by taking a real look at your spontaneous spending that you’re doing things that you don’t really find valuable. The next month, that money might hold out until the twenty seventh of the month, simply because you’re a bit more selective in what you do with your mad money – and there’s no adverse effect on your happiness at all.

After a few months, you might find an adjustment is in order – either up or down. Such an adjustment is fine as long as you’re paying all your bills and either actively reducing your debt or increasing your personal savings.

The real key is this: every action you take is worthy of a bit of thought, either beforehand, in the moment, or afterwards. A bit of reflection often tells you whether that choice was right or wrong for you – whether it actually adds value to your life.

Then, taking the conscious steps to reduce those things that don’t add much value becomes easy – you just eliminate the negative and by default the positive in your life is accentuated.

Yes, for some people, a simple budget can be incredibly useful. But for many others, just a bit of planning ahead can make the big difference that they need.

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  1. Katherine says:

    Here’s a bit of great advice we got when we first got married re: spending money. Especially if you’re on a budget like we are.

    Put aside an amount (25, 50 bucks, whatever you can budget) for each spouse each month.

    Your spouse can spend this money on whatever they want. If they want to go out for lunch with this money, they can. If they want to buy Starbucks and magazines with it, they can. If they want a big ticket item (stereo, video game system) they have to save up their monthly money to buy it.

    This system has saved us from so many potential conflicts. My husband loves to go out to Subway for lunch and I see it as a huge waste of money. He doesn’t. But it’s his money, so he can go out to Subway as many times as he wants until he runs out.

    I love clothes. My husband doesn’t. I frequently spend that money on new clothes…often having to save it if I want to get a new dress or something more expensive. Last year I saved up my “Personal Money,” as we call it, and combined it with birthday and Christmas money to get a really nice camera. I ‘m so happy with my camera, and there are no feelings of resentment between my hubby and I.

    This system gives us some freedom, still gives us boundries, and we have no resenment in our finances at all because we happen to agree on how we should spend our money on almost everything else. It’s awesome!

  2. Rachel says:

    You’ve given some great advice Trent. I tend to fall into the “oh, poor me!” rut when I have no money to spend. But I have given myself permission to spend $1.00 when I am out and about. What can you buy with $1.00? I love ice cream, it’s my guilty pleasure. I can get a vanilla cone at McDonalds or Sonic for $1.00. A cone at Chick Fil a is about $1.25. Also, we have a movie theater that shows the older releases for $1.00. I also love movies. My library sells books for .25 and .50 each. Magazines are free! I live in an otherwise expensive area. But I don’t feel so deprived if I can spend $1.00. I don’t know about $100.00 per month, that’s a lot of ice cream cones!

  3. Tyler Karaszewski says:

    Right at this moment, the current balance of my checking accounts is $7,753.71. I think I’ll stop and get some coffee and a donut on the way to work. I’m pretty sure my electric bill won’t come anywhere near $7,750 this month, so I’m probably OK.

    Not really sure I need to do any extra planning here, so either I missed the point of the article or it wasn’t directed at me as an audience.

  4. Lilly says:

    “Let’s say you go shopping with a friend. On a whim, you buy a new dress, then the two of you go out to dinner together and head out to a movie. For many people, this is a nice, fun evening. The worrisome side of it comes later. You go home, look through your credit card statements, and realize that the $50 you spent tonight – previously unaccounted for – has now completely tapped you out.”

    This reminds me of last month, my husband and I decided to play at a Magic tournament in town and spent $25 each to enter. We had kinda planned ahead for the expense, but ended up staying for a booster draft afterwards ($15 each)… After we finished, I just looked at my husband and said “Do you realize we just spent $80 today?” I almost cried!

  5. J says:

    @Tyler — you missed the point. If you have $7500 in your checking account right now, is that enough to cover the remainder of the monthly bills? Mortgage/rent, groceries, electricity, debt payments, going out to eat, other expenses, etc?

    The situation Trent describes is where people spend on little things and it adds up to where you can’t pay the rent or keep the lights on because you spent money impulsively on small stuff and it added up to a few hundred dollars you didn’t have. What happens next, of course, is that this person puts stuff on a credit card or raids savings (or their emergency fund). Then the next month, the cycle begins anew — with a credit card balance or less in savings.

    My wife and I have a budget item for “blow money” — money we get that we can use for whatever we see fit. We also put aside some money for “takeout” and “family eat out”. This allows us to have spontaneous spending without going outside the budget, and we know we will be able to pay the bills, put money in savings and not have to do things like carry a credit card balance and/or deplete savings for no good reason.

  6. Michelle says:

    Tyler, Right now I probably have about $6000 in my checking account. And I’m EXACTLY the person that Trent is talking to. Why? Because I have the cushion, I’m less apt to notice the slow leak in my budget.

    A few months ago I started writing down everything I spent. I was shocked to see that each month I was spending several hundred dollars more than I was taking home. I didn’t notice because of that cushion, and because I’d transfer money back and forth from checking to savings to MMA, so the balances were always fluxuating up and down (I didn’t take time to add up the total).

    Now I have a budget, I anticipate what my needs are for the month, I’ve budgeted money for “play” and I’m putting more money into savings. And keeping it there.

    Those little holes in the bucket let out much more than I ever thought they would.

  7. Tyler Karaszewski says:

    Yes, it’s far more than is necessary to cover the monthly bills, which is what I was hinting at by saying that my electricity payment wasn’t likely to be anywhere near $7500. $7500 will cover my monthly necessities about three times over.

    I bought my coffee and donut. It was $2.20. I do stuff like this *all the time* and nevertheless, I still have three months expenses sitting in my checking account. What planning am I not doing that I should be?

    I would have to go overboard to a ridiculous degree to impulse-spend myself into a situation where I couldn’t afford my monthly bills. A few dollars here and there isn’t going to do it. It seems like this is advice that really only applies to people who have their checking accounts bordering on empty at the end of the month.

    I don’t keep a budget at all. I have investment/savings money deducted directly from my paycheck, and everything leftover after that gets used to pay bills. Anything left over after that is essentially “blow money”. I’ve already contributed to my savings, and I’ve already paid the bills, what does it matter if I spend $2.20 on breakfast?

    The title of the article is “plan ahead every time you spend”. I just don’t see what planning I could do that would make a difference for these small purchases.

  8. ChrisD says:

    @Tyler. Congratulations, you are rich and on top of your finances. But keeping 3x your monthly spending in a chequing account is a waste of money, you should keep most of it in a high interest account.

  9. J says:

    @Tyler — you are “weird” (and I mean that in a good way) in that you can control your impulse spending. You are correct in that “this is advice that really only applies to people who have their checking accounts bordering on empty at the end of the month” — which is actually a pretty fair proportion of the population.

    I’m guessing you are a single male? Add in a wife and couple of kids and budgeting becomes necessary because the actual needs (food, clothing, shelter), the responsible stuff (life/disability insurance, savings, college funding, retirement) and the wants (toys, activities, babysitters, etc) quickly overwhelm many people’s income and need to be prioritized and accounted for. If you don’t do this, it’s a quick trip to the credit card balance that doesn’t ever go away and debt hell.

  10. Ashley says:


    About an hour after reading this article, I found this piece that I thought you are your readers would enjoy. Talk about timing!


  11. Gabriel says:

    This absolutely nails my problem on the head. Being a young woman, I have a certain weakness for new, pretty clothes. I luckily made the switch to discount racks, but even then I can spend an unthinkable amount without even blinking. It’s a bad habit that I’m trying to fix, especially as I’m sorting out my clothes since I have no more room in my closet.

  12. Amy says:

    I totally agree! Before I go shopping, whether it is for clothing or for groceries..I make a plan. I try to figure out what I need first then see if the places I am going to shop are running any specials. Or even better, I check the store ads first then decided where to shop. I recently wrote an article that touches on that as well. The focus of the article is mostly how to use your store credit card (without racking up debt) yet still save a bundle. If you are interested the link is

  13. David says:

    Sorry J, I’m with Tyler here. I think this article is geared more towards people who do not have a nice cushion like his. He doesn’t need to spend the time or effort of thinking twice about getting a coffee once in a while.

    I do like your “blow money” plan. I like the idea of budgeting money for unbudgeted purposes!

  14. Beth says:

    @ Tyler, you mention that you’re not on a budget but that your savings and investment money come out of your check before you see them, then you pay your bills, and then the rest is blow money- right? Well there you have it, a budget! What Trent is stating is before people allocate the money for their bills, they blow that money and then when it comes time for the bills they don’t have it. So in your case coffee and donuts aren’t going to throw you off since you have already paid your bills and invested/saved money. It would affect you if you decided to buy a jet ski for 5000 and took that from your 3 month emergency fund. That’s when this article would affect you.

  15. anne says:

    i spent the morning impulse spending- i really did

    i was happy to find a purse i really, really liked and wanted to buy a few months ago still at marshall’s and marked down to $10. so i feel ok about that one.

    but a lot of the other stuff i bought i didn’t really need.

    but you know milton’s red swingline stapler from office space? i just bought 6 of them. i know i’ll give one to my friend christine, and i’ll keep one, but i don’t know who the other 4 are for. but they were only $5 each, marked down from $19.99.

    today i HAD to buy them, but on another day i know i wouldn’t have felt the same way.

    i bought one at office max, w/ the package of copy paper i needed, and a few other supplies. when it rang up at $5 instead of the $10 it was marked, i went back for the rest.

    i’m pretty sure they, accompanied by an office space dvd, will be xmas presents in a few months, but i feel kind of crazy right now.

  16. Yelena says:

    Great article! I totally agree with planning ahead and also with a “wait and see” rule (although 30 days is a bit of a stretch for me). Before going to a store – grocery store, dept. store, etc – I write a list of things that I need. This is extremely important to me since I shop with my toddler.

    It’s really a killer combo – typical store’s clever marketing and merchandizing + a very impatient and distracting 2-year old + overtired and hurried mom. Making a list means that a) I won’t forget what I came to the store for and b) I won’t make any impulse purchases.

    Even though I do stray from my list from time to time, I still save a lot of money.

  17. des says:

    Trent, this is a very good idea. I follow a similar principle. In January I reflected on my spending the previous year–what I spent on gifts, car maintenance, travel–the little things that really start to add up if you have to just lay out the money in one fell swoop. I then devised a monthly savings plan for each category and made subaccounts in ING. Now when it comes time to go to a birthday party, get a new tire, or go to the beach, I have a funding source that allows me to have fun without affecting my monthly budget.

  18. Brittany says:

    Good article. I read this research the other day on how “spendthrifts” and “tightwads” (a summary of the research: http://today.msnbc.msn.com/id/32189414/ns/today-today_relationships/)
    tend to marry each other. While I think the study went a little far in sorting these two at extremes and doesn’t much seem to discuss people more towards the middle or which more balanced, healthy views on money, it did make me think about buyer’s remorse v. non-buyer’s remorse. I think this rule works well at preventing both–yes, think about your purchases and don’t buy on the spot. But if you’re still thinking about it a few weeks later, overcome the non-buyer’s remorse and take the plunge (IF you can afford it–that is key). 30 days is a lot longer than my “thinking” break, though. Usually, a week is plenty of time for me to make sure I can afford it and decide whether I really do need it; I just want it, but think it’s a worthwhile purchase; or I just want it but it doesn’t add more than very fleeting value to my life. Doing this had enabled me to make very few purchases I regret (and usually those are ones I didn’t think about long enough), which has enabled me to have the money to make purchases of higher-prices items I felt guilty spending the money on originally, but use almost everyday and have no regrets about (a nice laptop, a high-end pots and pans set, a pair of sandals with excellent support that can be dressy or casual that cost a little more than I’d normally spend on shoes, etc.)

    Excellent rule, excellent post.

  19. I couldn’t have said it better myself–before I go and buy just about anything now–I ask myself one question–Do I really need it?

    Sometimes I have to ask myself two or three times, but if I get that far and the answer is still “yes”, then I go ahead.

    I have probably saved myself thousands over the years by just going thru this simple ritual.

  20. I’m a bit behind in my reading, but wanted to say I wholly agree. :) For me, it’s having a separate savings account for when I come across something I want to do that isn’t in the budget at that time, but I have the opportunity to do it. (I call it my Sunny Day Fund, but it’s basically an Opportunity Fund, as I’ve seen that concept before.)

    Right now, I’m debating about just going nuts and saving to get a Louis Vuitton bag. Yup, the ultimate in consumer goods luxury and want…. But it’s a nice, like $700 goal that I think would be fun to save for. If not fun to see if I could actually drop that sort of money on a bag!! But something I know I would keep for a very long time and would be classic.

    Maybe not, but the way things seem to be yet… I’m inclined to think so. Not an “investment” any more than I spend a ton up front to always have an awesome bag to use for the next few decades. I’ve used my $300 Coach bag for a year now. Not every day, but I haven’t had the desire for a new Coach so that’s a good sign. Maybe I’m ready for the next “step.” :)

  21. Patty says:

    Tyler, I think the point Trent was trying to make works for everyone in different ways. For some its limiting the small purchases to have enough to get our of debt or to pay the bills at the end of the month. For others like you and I its about having enough to be secure and stay secure in your finances. Do you really have enough saved to handle the ups and downs of life whether it be kids or hurricanes or anything inbetween. Occasional planned splurges are fine but if you walked into your job and found out you were fired how would you feel about your morning coffee purchase? Really though, it seems he is just saying to take a moment to think about purchases and based on your comments you thought about the coffee and decided it was worth it to you. Its great you have a stable savings but do keep an open mind to the larger picture Trent is trying to share.

  22. steve says:

    @ Tyler:

    Being able to “cover” something is different and distinct from being able to afford it.

    With regard to your posts, I would say that the balance in your checking account is only a small part of the picture when it comes to whether you are meeting your financial goals. If you can afford the impulse purchases–and by afford, I mean that all of your long and medium term goals are currently fully funded, or on track to be funded,*and* you have enough money to spend on impulse stuff–then spend away!

    I think the number of people who are in a position to do this are pretty small.

    For example, someone who is young (20s) and single might think they have a lot of disposable income, not realizing that they haven’t planned ahead financially to pay for getting married in the future, for having their first kid, or that their rate of retirement savings is nowhere near what they would want to have if they stopped to actually plan it out. If they come from a kind of “work for salary” family background, they might not have thought about planning to have a good chunk of cash on hand to take advantage of business opportunities that may crop up, either.

    Once you begin planning for these things, a lot of that “disposable” income that they are spendin may now need to be saved for allocation to some of these medium and long term goals.

    But first make sure that you’ve really got a handle on those long, medium, and short term plans. And most would benefit from sequestering the money for them in a separate account from their everyday monthly checking account so that accessing those funds has to be done consciously.

  23. steve says:

    also, and again directed towards “Tyler” or others who are nodding their heads in agreement with him, although you specify that savings and retirement money come out of your pay and are invested separately, are the levels of savings adequate to your needs or plans is the most important question.

    If you’ve evaluated this and they are, that’s great for you. If you haven’t really evaluated your eventual needs for savings and retirement (separate things) then it would definitely be worth your while to take some time and take a look at them, then make sure your auto deductions get altered up to meet them.

  24. Steve in W MA says:

    The person with $7500 in his checking account should probably transfer $6500 of it to a separate savings account because with that kind of cushion he is much more likely to fritter away your money on worthless junk and unimportant convenience purchases.

    Believe me, I’ve done it. And 6 months of restaurant dinners is not worth $6000 of hard-saved cash. It’s much more worthwhile to either keep it as savings or use it to purchase something important.

  25. Kim says:

    i LOVE this article. This describes my budget!! I love planned out spending that is spontaneous too! We have a “clothing” budget, “gift” budget, “coffee” budget. Most of this was categorized when I was single and we’re about to merge some of those in our budget now that we’ve just paid off all our extra debt (definitely not the mortgage yet). But my husband just introduced me to TSD and I love it. Esp these 14 rules. I already follow pretty much all of these, but I like seeing other ways to improve. I’m very money-minded with every purchase so this is just right up my alley!

  26. Jessica says:

    I would like to use this method myself. I never thought of putting money away in a “fun” account.

  27. Lisa Salthe says:

    I agree that a budget allows for more spontaneity. If you stay within your budget you can buy the more expensive items you love without the guilt and worry if you buy other items that don’t matter as much cheaply.

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