I recently bumped into one of my best friends while she was on her way to a workout class. As we were talking, she told me that it was her third class of the weekend and that she felt guilty spending so much money on all of these classes.
I've known her for years, so I know that she is very thoughtful about her spending and has her financial foundation in order. She is 37 and has more than 3 times her salary in her 401(k); she has 6 months' worth of emergency savings; she's aggressively saving for her son's college; she has no debt; she has life insurance and a will. So why does she feel guilty about spending her own money on something for herself?
The cognitive dissonance of spending money
Spending money often evokes mixed and/or conflicting emotions, such as a positive feeling for doing something you wanted to do combined with a negative feeling that you should have done something differently. This is not surprising, considering our culture sends contradictory messages telling us to save more while also buying more. This message becomes even more complicated during volatile times (like the pandemic) when many people are struggling financially — and it can feel too privileged to spend money unnecessarily. Additionally, women are often expected to self-sacrifice when it comes to their family, even when it comes to money.
So, it's no surprise that my friend would feel guilty for spending money on herself even though it was within her budget and she was already meeting all of her other financial goals.
We ended up having a long talk that day about exactly why she feels so guilty. It turns out that she wants to be prepared for emergencies and worries a lot about "What ifs…?": "What if I get sick and can't take care of my son?" "What if I lose my job and can't pay my mortgage?" "What if there's something worse than the pandemic?" She is constantly feeling regret for her purchases because she feels she should be saving more for these edge-case emergencies.
She's not alone: More than 50% of women have $20,000 or more (above and beyond 3–6 months' savings) in their checking or savings account*. Yet like many others, my friend isn't exactly sure how much money would make her feel secure or what she should be doing to get there.
A new way of thinking
There is a way to alleviate these feelings and it's not overly complex: It involves looking closely at money in and money out each month, some careful thinking about what's important to you, and perhaps most importantly for alleviating any feelings of guilt, separating money into buckets based on purpose. Spoiler: You get your own bucket for whatever you want, whether it's for investing, leaving a legacy, or that exercise class.
Step 1: Figure out your 50/15/5 budget
Budgets get a bad reputation. They're not meant to be restrictive, but rather guidelines to help you understand exactly how much you can spend without having to worry — and they are for people of all income levels. The first thing to do is make a list of every single thing you pay for each month. Next, put everything on your list into categories. One category is "Things I have no choice but to pay for." This includes your housing, health care, child care, taxes, etc. and should be in the ballpark of about 50% of your take-home pay, a bit more or less depending on where you live and other special circumstances. The second category is "Retirement" and Fidelity suggests this is about 15% of your pay, including money you and your employer put into your 401(k). The third category is any additional savings, which should be about 5%.
Now, write down the number that's left over. It should be about 30% of your take-home pay.
Step 2: Think carefully about what matters to you and what keeps you up at night
Next, write down everything you wish you could pay for each month: big things and little things and day-to-day things. Be honest with yourself. If getting takeout frequently matters, put it on there. If going to a workout class makes you happy, put it on there. If you want to try investing but are afraid of losing money, put it there. Many people have what is called a "sleep at night number." What amount of emergency savings would let you sleep peacefully at night? Write that down too.
The point here isn't to save money or to judge yourself, but to simply capture what you want.
Step 3: Put your new system in place
Now, take the number from step 1 and your list from step 2 and decide how you want to portion out your money. If, like my friend, you want to build up extra long-term savings, then you might take half of your 30% and directly deposit it into its own account each month, leaving you with 15% for everything else. The goal is to see how much you have left that is just for you, not for saving or for someone else or something you feel is more responsible.
Hypothetical example for illustrative purposes
Moving forward, remember that you've done your budget, set your goals, and bucketed your money. "Worrying about money doesn't solve money problems," says Andy Reed, PhD and economic behavioralist at Fidelity Investments. That's the point of budgeting and goal-setting: to find a guilt-free way to use your money.