Practicing healthy spending and saving habits can help you reach your goals and prepare for the future. It’s all about striking a balance, so how can you achieve this equilibrium?
Quick takeaways
Have you heard of doom spending?
Doom spending is a tongue-in-cheek way to describe impulsively buying things you might not need or spending on life experiences, such as travel, to help counter anxieties over personal finances or the general state of the economy. (Doom spending is a relative of doomscrolling or spending time mindlessly scrolling on social media.)
Many people feel that factors outside their control influence their finances, so there’s no point in waiting to spend. Or they have a “you only live once” mindset, not wanting to put off certain life experiences or purchases.
Younger Americans may be more at risk for doom spending as they feel gloomy about their future financial prospects after the pandemic, and when contemplating their future career prospects. Many find it difficult to reach that next milestone in life, be it starting a family or buying a home. Spending on luxuries—big or small—is one way people may try to gain a feeling of control.
In addition, the increase in buy now, pay later applications makes it easier for consumers to get short-term credit and put off paying for a purchase until later. And social media influence continues to be a major catalyst for excess spending, with more ads inundating every platform (TikTok shop, anyone?).
Balance can be crucial. Just like you seek a work-life balance, you can strive for a save-spend sweet spot to enjoy life today and still plan for future financial goals. For most people, finding balance means following some guidelines that aren’t too restrictive and can lead to lasting change.
These could include:
1. Set a monthly budget.
To spend intentionally, it’s essential to know where your money goes each month. Generally, Principal® suggests using the 50/30/20 budgeting framework for your monthly income, where:
- 50% of your take-home pay goes toward needs and essential living expenses
- 30% goes toward wants
- 20% goes toward savings goals or debt payments
This framework is in addition to the recommended 15% retirement savings rate (including any employer match) that comes out of your paycheck before it hits your bank account.
Replacement factor of 80% is based on our industry experience and GAO Retirement Security Report to Congressional requestors. The estimated average total spending for post-retirement households was about 77 percent of the spending levels for pre-retirement households. GAO, 2013 CE Data; 16-242, Retirement Replacement Rates.
Keep in mind that the 50/30/20 framework might not work for you right now, and that’s okay. If you can’t save 20% of your monthly take-home pay, maybe start with 10%. The main takeaway is to
2. Automate your goals.
You can automate your goals by setting up direct deposit into different accounts. For example, you may choose to have your paycheck split up, with direct deposits into multiple accounts for bills, your emergency fund, and longer-term savings. You can also automate credit card payments and bills to ensure balances are paid in full each month.
3. Create and stick to a debt payment plan.
Making a plan to pay down debt can help give you more breathing room in your budget over time.
Doom spending may provide a temporary sense of self-control, but the financial security tradeoffs may not pay off—now or later. Like anything worth committing to, your financial future can benefit from careful consideration, planning, and discipline.
What’s next?
Log in to your account at Principal to explore our budgeting tool.
