Dear Carrie: I’m feeling a little overwhelmed by all the things I need to save for. From retirement and emergency funds to my son’s college account and home repairs — on top of trying to pay extra on the mortgage and student loans — I feel as if I have very little left over for anything else. I know these bigger things are important, but sometimes I just want to splurge on something fun. How can I spend my money without feeling guilty? — A Reader
Dear Reader: I’m impressed with your question. Most people have the opposite problem. They overspend on the fun and put saving on the back burner. So first give yourself a big round of applause for being so responsible. Then cut yourself some slack — because though preparing for the future is important, especially saving for retirement, so is enjoying the present. And I believe that you can do both. It just takes organization and prioritization — plus the flexibility to make changes if life throws you some curveballs.
Take a Fresh Look at Your Essential Expenses
It sounds as if you have a pretty well-thought-out budget and you’re good at sticking to it. That’s great. However, if you’ve earmarked all of your income toward necessities plus savings, maybe now’s the time to review where your money is going and see whether there might be some wiggle room.
First, focus on your necessities, such as your mortgage, utilities, transportation, insurance, food and clothing, and tuition. Don’t forget to factor in any payments toward consumer debt or annual obligations, such as real estate taxes. This exercise should reaffirm that everything is covered.
Review Your Savings Goals
Let’s start with your emergency fund. The common recommendation is to have three to six months’ worth of living expenses in an easily accessible account to cover yourself and your family should someone be unable to work because of illness or a job loss. How close are you to meeting this goal? Once you have the money set aside, that’s one fewer savings obligation.
You also mention home repairs. This, too, can be a finite goal. Actual maintenance costs vary year to year, so having a certain amount of cash set aside for immediate repairs is a good idea. However, you might also consider a home equity line of credit if you have sufficient equity in your home. This will add to your debt load (and you must always pay the minimum due every month) but can also give you more flexibility as you save for multiple goals.
Now review your projections for both college and retirement savings. (Schwab MoneyWise has good college savings and retirement calculators.) Though it’s always good to be a conscientious saver — especially for retirement — it’s possible that you’ve set your bar a bit too high. If you haven’t reviewed your progress for a while, now would be a good time to see how you’re doing. Perhaps you’ll be able to cut back just a little on your monthly contributions and still meet your ultimate goals. If not, you’ll need to look for other places to make trade-offs.
Don’t Let ‘Good’ Debt Get You Down
Though keeping on top of debt should always be part of financial management, you may be able to take a step back when it comes to paying extra on your mortgage and your student loans. That’s because both fall into what we call “good debt,” meaning they are generally low-cost and have potential tax, as well as personal, advantages. So even though it’s always nice to pay down debt, paying off “good debt” is not so important as paying off credit card debt. (Of course, you never want to be late with your minimum payments.)
Bottom line, it’s a tough call. You could consider stopping your overpayments until you get a raise or have disposable income from another source. It’s all a matter of balance.
Make Some Room for Discretionary Spending
Budgeting is about creating buckets for each area of expenditure. For many people, discretionary spending — the bucket for fun — is inordinately large. It seems to me that your discretionary bucket may be too small or even nonexistent.
As you look at your overall budget, make sure you now add in the bucket for fun and start filling it. See where you can carve even just a bit of extra money out of your monthly income for such things as entertainment and a family vacation. You might also put a good portion of any unexpected money — for instance, a bonus, a refund or a gift — toward your discretionary spending.
Make this as important a goal as the others. That doesn’t mean you’ll always be able to contribute to it — life has a way of presenting changing financial challenges — but don’t always put it last, either. Just keep filling this bucket as regularly as you can.
The main point is that with money earmarked especially for the nice-to-haves — whatever they may be — when you do choose to spend it, you can do so freely without worry that you’re jeopardizing some other aspect of your financial life. And speaking of fun, just think how much fun you and your family will have watching that money grow and planning what you’ll do with it. Enjoy!
Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER ™ is president of the Charles Schwab Foundation and author of “It Pays to Talk.” You can e-mail Carrie at firstname.lastname@example.org.