New Ways to Think About Spending and Budgeting

New Ways to Think About Spending and Budgeting

Preloading Monthly Payments

Earlier this week Carl Richards wrote an article for The New York Times titled, Skip Credit Cards and Preload Monthly Payments Instead.  This article caught my eye as I have a new client, an older couple, who are over-spending their monthly income and need help with spending and budgeting.  This situation is not unusual for seniors as in addition to maintaining the lifestyle they’ve always had, medical and other expenses pop up as people age.  And, we live in a world of immediate gratification and ‘spending opportunities’ everywhere:  numerous shopping channels, advertisements which are going into high gear as the holiday shopping season approaches.

What do seniors do?  Mr. Richards offered a new way to think about budgeting for ‘wants’ which I found very useful for people of all ages.  He calls it “preloading.”  Preloading gets people away from the “buy it now” impulse to a delayed gratification practice which helps the brain to buy only items that a person values/needs rather than those that are things not really needed or ‘worth the cost.’

In the preloading model the person decides they want to make a larger than normal purchase (phone, television, media center).  Rather than placing the item on a credit card, the person opens a savings account and automatically transfers $50 or $100 per month to that account.  Richards says they should do this process for a few months, which will allow them to get to practice before they buy and see how it feels.  In a few months they get to experience how it feels to have that money taken out of their checking account – before the purchase is made.  The impulse or reason to buy the product may not be strong enough to move forward with the actual purchase.  Delaying the purchase often leads to spending money on the things that really matter to them.  At that time if they still want the item they will have money set aside for some or most of the cost.

Years ago the same strategy was behind vacation clubs and Christmas clubs.  You transferred a monthly amount from your checking to your savings so at the end of the period, the money was there for that vacation or holiday presents.  Many banks offer transfer plans.  It may be time to try them again.


A Few Good Budgeting Tips

Here are some good ideas to help with overall budgeting.

  • Have a goal: visiting the grandchildren/taking them on vacation, golf cart, aging in place renovation
    • Track spending for a week: carry a pad, notebook or use notes in phone – list every purchase made via cash or credit and the amount spent; this will give you a clear understanding of what is being spent
  • Track weekly rather than monthly expenditures for smaller items (groceries, gas, restaurants, golf fees)
  • Larger bills (mortgage/rent/condo fees, utilities, insurance, auto, repairs) track monthly
  • Account for miscellaneous spending (gifts, clothing, shoes, personal care, travel)
  • Have a line item(s) for emergencies (medical not covered, large repairs)
  • Pay off debt or obtain a lower interest rate
  • Use the highest annual amount when budgeting for items like utilities
  • Look at the budget at the beginning of the month, mid-month and end of the month