If you spend time perusing the personal finance blog-o-sphere, you will come to two conclusions. One, you need to budget and reduce the amount you spend. Two, you need to increase the amount you make. While that advice works, it could use a little wiggle room.
We Are Not Robots
As you can gather from my post on budgeting, I tend to take inspiration from personal finance rules rather than following them religiously. On any given month I may forgo savings in favour of investing when most would recommend saving first. I may also overspend occasionally, and I believe this is a good thing.
Anyone that tells you they never exceed their budget is either a robot, a liar, or incredibly lucky. There are times when spending more than you bargained for is unavoidable. You may have a medical issue, your car might breakdown, or you may have forgotten to budget for your favourite Aunt’s birthday. If you are well versed in personal finance, you should have an emergency fund set up to deal with these occurrences. If you do, you can simply use the money and top up your emergency fund to the required level over the following months. If you don’t, you may find the next few months a struggle.
Leaving aside emergencies and unforeseen events, should you ever willingly overspend? I think you should.
A Few Assumptions
Before we explore why I think overspending can be useful, let’s make a few assumptions.
- You are committed to improving your financial wellbeing.
- You have a budget. It does not necessarily have to be set in stone, but you have guidelines for what you spend every month.
- You don’t consciously spend more than you have budgeted for regularly.
If the above assumptions don’t apply to you, you should concentrate on getting these in place before consciously overspending. If you don’t have a budget in place, you won’t have any idea if you are over or underspending. Without a limit, there is no such thing as overspending.
A Mental Reset
I view my budget as a sort of meal plan or diet. I know if I stick to it, it will get me to where I need to be. As anyone who adheres to a meal plan will tell you, it can get boring. The same can be true of a budget. Setting aside a certain amount for saving, a certain amount for living expenses and a certain amount for investing is a fantastic way to further your personal finances, but it can get tedious. That’s why, from time to time, I will consciously overspend on a certain area of my budget. It is the personal finance equivalent of a cheat day. If you do it right, it will put you off overspending (or overeating) for a while.
Overspending acts as a mental reset, particularly when you overspend on categories that don’t further your financial goals. Only have €100 budgeted for dining out each month? Splash out and spend that on a single dinner. You will get immense pleasure from the dinner itself, but it will probably make you feel guilty enough to ensure you don’t do it regularly. You may think blowing your dining out budget on one meal is excessive, but this is just an example. You don’t have to overspend your budget in one go, the method is less important than the result.
Don’t Overdo It
The title of this paragraph could apply to most things in life. If you overdo the overspending, you will lose whatever benefits you may have gained from overspending in the first place. If you overspend for a few months in a row on a particular category, you are no longer overspending. You have just unwittingly increased your budget for that category. To use the earlier analogy of the food plan, if you are having a cheat day multiple times a week, it’s no longer a cheat day, it’s just a regular day.
I don’t want you to read this post and feel like it is a free ticket to kick your budget to the kerb. To put it into context, I will consciously overspend two or three times a year in a particular category. This includes my investment and savings categories. Last month I added additional money to my investment account and neglected my savings slightly. While it felt great to add more money into my investment account, I definitely felt guilty for missing my savings goal. You can be sure I won’t skimp on savings for the next few months.
As I mentioned earlier unless you are comfortable with your budget and your finances in general, I would not recommend overspending. This is a tool best used when you have your finances automated and you are looking to spice things up a bit. You should never take on debt to consciously overspend. You should never forgo financial obligations to overspend on something fun. Taking money from your savings budget to overspend on dining is fine a couple of times a year, but taking money from your rent budget isn’t.
Personal finance is exactly that, personal. You may be horrified at the idea of consciously overspending, if that is the case just continue what you are doing if it is working for you. If, however, you are like me and get bored with budgets, splash out from time to time on a certain category that you enjoy. I’ll leave you with an old Irish proverb that is applicable to overspending.
“An rud is annamh is iontach” – “What’s rare is wonderful”
The Stoic Trader