Consider This Your Permission to Spend More Money in 2022

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Inflation and other factors mean you will spend more in 2022. That’s why it’s okay.

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“What is going on right now is so crazy that no one has any idea what the baseline should be. The past may or may not be relevant to the future,” said Abigail Sussman, associate professor of marketing at the University of Chicago who studies how consumers make decisions.

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Financial experts recommend that allocating more for future budget needs, such as higher fares, as well as expenses, such as travel. Here are some ways to do this.

keep saving

Thanks to a strong labor market, rising wages, and record-high savings rates, you may have saved a lot of money over the past year. You can save more in 2022.

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Adding more to your existing savings can allay a lot of fears people have about spending more money in other spending categories, said Sarah Behr, financial planner and founder of SimpliFi Financial in San Francisco. As you watch that savings account grow, you can rest easy knowing that should disaster strike, you have a cushion.

Check your savings progress from last year. Are you happy with the amount set aside? Do you want to increase your savings rate or keep the current rate? Even when you increase your budget, save before spending on other things. You can set up regularly scheduled withdrawals to automate the process and eliminate stressful decisions.

stop thinking in dollars

Keeping frugal habits helps avoid lifestyle creep. Yet you’ll be hanging on to old ideas about how many dollars to spend in different areas of life. Your spending on travel, outings and entertainment may have come down in the past two years, but those circumstances are not permanent.

Spending more money than before can create a sense of shame or embarrassment, Ms Behr said. It has previously spoken to clients who have risen above meager means and are struggling to adjust to the new latitude and more money it gives them.

“I’m the one who’s saying, ‘Wow, whoa, whoa, you can afford to go out to eat, you can buy a new car, you don’t have to drive your 2015 Prius,'” Ms. Behr said. said. ,[Clients] There are savings, and they’re squirrels, but there’s no change in perspective.”

Felton & Peel Wealth Management Inc. Malik Lee, MD, managing principal and advisor, recommends looking at budgeting in terms of a percentage of your total income rather than a dollar amount.

He points to the 20-30-50 model, a theory of personal finance that encourages putting at least 20% of your take-home pay into savings; allocating 30% for “wants” such as travel and socializing; and specifying the final 50% for fixed expenses such as housing and bills.

“Thinking in percentages of income makes it a lot easier, and it makes it flexible,” Mr. Lee said. “As you’re increasing your income, this will ensure that your savings grow with that, and that other ‘good’ categories will grow as well.”

choose your spray

Most of us have made a practice of budgeting and cutting down on expenses. Very few of us have spent time planning what we’ll spend more on, especially in terms of luxuries like travel or entertainment, which Ms Sussman refers to as “pre-commitment to indulgence”. Huh.

This doesn’t mean splurge on everything, but think carefully about the expense that will have the most positive impact, like setting aside money for a long-awaited vacation.

Instead, consider the expense that gives you the most satisfaction, such as vacations, home-fitness equipment or another priority. Allocating more money to such items can make your budget profitable, Ms. Sussman said, so that’s when you’re making trade-offs in other areas of your life—like outside to spend more on your newbies. Cutting down on moving expenses, bigger apartment—it feels less like a loss and more like a pivot.

Allocate money to those savings goals—”I’ll spend more on travel in 2022″ or “I want to save for a bigger apartment”—by creating a separate bucket for these funds. Name it something funny in your favorite budgeting app or spreadsheet. That way, as you watch the money in the account grow, you can sprinkle some extra anticipation on future fulfillment.

Last, a piece of advice

Whatever budget works best for you, Ms. Behr cautions against measuring your own spending or savings against peers.

“A lot of people ask me, ‘Do we spend too much money?’ Or ‘How much do other people spend?'” he said. It’s natural to worry about spending, he said, but comparing the size of your savings with those of others is often unproductive. “It’s like that old saying: ‘Comparison is the thief of joy.'”

Write to Julia Carpenter at [email protected]

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