Rule #10: Plan Ahead Every Time You Spend.

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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