This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com.
Do you have a Spending Identity? You do, whether you know it or not. It’s as real as the data on your driver’s license, but if you’re like most people, you’ve probably never given it much thought. Your Spending Identity dictates who you are as a consumer:
- Are you frugal or extravagant?
- Do you impulse shop?
- Do you clip coupons?
These are all part of your profile.
A budget, by any other name…
I’m currently reading The Money Book for Freelancers, which I’ll review here soon. It’s a great book with a lot of juicy info, including the concept of the Spending Identity. The authors ask you to write out a Spending Identity for yourself to get a picture of who you are and what you can spend. It’s a step between learning to track your income & expenses and developing a fully realized spending plan to manage your money.
The authors fully acknowledge that their Spending Identity concept is a sneaky way to start readers budgeting. It’s just a less scary word. But it also contains an important concept.
The Spending Identity is a lot less specific than a budget. Its goal isn’t to get you to commit to spending $170 a week on groceries; its goal is to turn you into a person who knows about how much money you can reasonably spend when you walk out the door each day. Not your bank balance to the penny, just the overall reality of your cash flow. Are you in the Gucci tax bracket or the Gap one? Being realistic about this can save you a lot of financial headaches.
This feels like an essential skill to develop, and one I’m still shaky on. I’ve learned to track my spending, and I’m pretty good about sticking to my spending plan. If I’m not sure whether or not I can afford $40 for hair dye or $90 for cat flea treatments (two unusual expenses that cropped up this week), I can check the Mint app on my cell phone and get the answer in seconds.
But my core sense of what I can afford is all over the map. Sometimes I’m incredibly frugal, and other times I’m prone to impulse shopping. One week, I’ll meticulously pare down our grocery list to keep it under $100; the next, I’ll drop that much cash on thermal curtains or bike parts without a second thought.
Outsmarting myself
My Spending Identity hasn’t changed much since college: I always live right at the edge of my means, spending everything in my checking account — and a little more. I often hit the end of the month juggling grocery expenses against a financial surprise like a parking ticket or an invitation to a kid’s to which I’m expected to bring a gift.
As I’ve grown more financially savvy, I’ve learned ways to fool that Spending Identity into doing the right thing. Most of my money gets swept into an ING account where I put it into automatic savings plans and pay bills. In those accounts, my savings are piling up and I’m paying off debt. In my local checking account, I’m still juggling my cash flow problems like I always have.
I learned to work around my innate personality as a spender, but I didn’t really change it.
Now, I’m kind of inspired to do so. I’d like to be the kind of person who has a consistent, accurate sense of what I can spend money on, how much I can afford, and how it relates to my priorities. Not just the sense that comes from meticulous record-keeping &mdsah what I’m looking for is better instincts.
I know about how far I can run, how often I need to eat, and how much I can write in a day. I keep records of my diet, exercise, and writing habits, but I don’t need to consult them for a broad sense. I just use them to track details. Sometimes those details show me shifting trends that surprise me, but I don’t look at my running log when I’m mid-run to find out if I’m tired. I just know.
I’d like to have a similar built-in sense for what I can spend, and what I’d like to spend it on. I can use the data I’ve collected over two years of tracking my spending to help with that. A few minutes spent journaling can also help me understand myself better:
- What do I like to spend money on?
- Where are the weak spots in my budget?
- What are my strengths as a frugal shopper?
After answering questions like these, I should be able to have a pretty clear profile for myself, with stats to reflect my superpowers and my flaws. (What’s my financial kryptonite?) For the geeks out there, this might be like a character sheet for financial planning.
A license to spend
I think it’s time I not only explored my Spending Identity, but created a Spending License. I love little visual reminders of my goals. I’m imagining a small card in my wallet that says, “Sierra Black, licensed to spend about $20 this week on personal fun, $150 on groceries, and up to $100 on other household expenses.” Or whatever those ballpark numbers turn out to really be.
My spending records will tell me what numbers to put on my license. Having that license should help me with the vague middle step between knowing exactly what I spend and reconciling it exactly with what I do spend. That vague step that has for me been the hardest: just knowing what I can afford, without doing all of the math while standing in line at the drugstore.
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I am definitely a saver by nature.
I enjoy saving money with my coupons at the grocery store, and I enjoy putting my money to work for me in investments and entrepreneuristic ventures.
Spending has never been my thing, but I splurge (within the budget) once in a while.
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Sierra I too would like to do more of that too – become a master of my budget. I’m pretty frugal on the whole.
I travel the world as a Suitcase entrepreneur and showing others how to do the same so the last thing I need to do is buy stuff.
In that respect I never overspend on material items. I find them totally unnecessary.
However I prefer to spend my money on experiences – travel, sports, events.
I also have been investing more in myself and my business by buying eBooks, products, contracting designers etc and that’s where I think I need to budget better!
I really like Indinero.com – it’s like Mint but for business and gives you a real time financial dashboard.
Natalie
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“Gucci tax bracket or the Gap one?”
Old Navy, here.
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The book sounds interesting, looking forward to the review!
Like #1, I really like saving, yet paradoxically am something of a spender. Or used to be anyway. Like you, I fool myself into seeing scarcity by just having my ‘monthly allowance’ in my checking account. And have some little tricks as well – some of them which seem silly, like if there’s money left in the checking account at the end of the month, I’ll do things like prepay my utilities if I’m traveling soon or pay the credit card for the next month. But generally, anything left over is free game if I don’t have it earmarked for something wonderful.
I think if you give yourself another few years, you’ll see that you don’t have to monitor / track so closely anymore – if you don’t want to. That’s what I found. The trick is not touching your reserves / savings even though you know you can. I just tend to think “this is not MY money to spend right now, this is the future me’s money.” It stops me from stealing from myself anyway.
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I like this post. I realized my spending identity by a different name recently–basically, I took time to figure out what it is that I truly value and then spend my money accordingly. I get frustrated when I see a disconnect in my own life (for instance, when I spend 35% of my net income on rent, when I really don’t care about where I live). I’d much rather spend extravagantly on the things I value.
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I don’t like the stark binaries in this article (Spender or saver!) but the general idea feels quite sound. I’m a spender in some areas and have always been and intend to be; not so much in others. But know what that means for my day to day budget and weak spots is a great help in many dimensions of my life.
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Strictly in terms of a spending identity, I may have multiple personality disorder! Some days I am obsessively frugal, other days quite indulgent. Considering the amount of income throughout the years my household has earned – we should have a lot more saved. Thankfully, that’s changing -we now have savings goals and psychologically have raised the bar for what constitutes an emergency, which gave us free reign to dip into savings. Still, I see a naughty habit forming – we have been using the credit card for dining out and take out, when we don’t feel like being disciplined and cooking. Credit does not feel real, it does not impact our checking account. We’ve went months without touching the card and now we’ve used it several times. GRS and other personal finance informational resources help me to remain vigilant and aware of destructive habits before they completely derail our efforts.
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I have personally always been a spender. I find that I was better at spending within something like a budget before my wife and I started mainly using cards. Back in the day, I found putting a small percentage of the cash from my paycheck into my wallet, and that was my spending money. Now I don’t see what I’m spending, so I need to think more about my choices than I used to. I think a book like the one you are talking about would be able to help people get a start on expense tracking and take their first steps towards a solid budget.
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I think part of my spending identity is that I want/need to have the cash for small indulgences more than I actually want/need the indulgences.
I might only drink one latte per month, but I really need to feel that I can get a latte whenever I want. It sounds odd, but it keeps me from feeling deprived and it also keeps treats as actual treats not entitlements.
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My spending identity has changed a great deal from what it was just 3 years ago. I continue to be a work in progress but I have scaled back ALL of my spending considerably. I am a conscious spender as opposed to an unconscious one! I don’t buy stuff just because I ‘like’ it anymore. I buy it because I need it and because I planned for it. It has to have a place in my house and in my life and I have to be able to afford it and pay for it in cash. I am much happier these days because I know that I have to work at solving my internal problems and that buying stuff is just a band aid for me that has NEVER worked. That was my jumping off point in completely changing my old spending identity to the one I happily identify with today.
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“Sometimes I’m incredibly frugal, and other times I’m prone to impulse shopping”
This is me to a T. I love to purge my closet and my apartment, and I’m constantly getting rid of Stuff. I use coupons and find sales for things I use whenever possible. Yet sometimes it’s really hard for me to say no to those adorable pairs of shoes! Luckily my impulse shopping hasn’t been as disastrous lately. I’m more conscious of my spending and I make sure I use whatever I buy on impulse (like the new dress I’m wearing today that I bought on impulse. I love it and I can tell it’s my new winter staple).
I understand the inner struggle, Sierra!
Signed,
Alyssa, licensed to spend more than I want to admit but less than it used to be!
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This is the type of post I can identify with pretty much completely. I’m still juggling with Spending. Sometimes, I feel like I have Multiple Spending Personality Disorder LOL I can go on NOTHING and then must buy everything and other times I’m just in a normal range. I know some of my weak spots– gifts (kids and loved ones) and eating out for instance. But it’s hard to avoid those weak spots. I am very intrigued by your local checking account and ING combo situation. I have been struggling to figure out a situation similiar to that one for myself. You’ve really inspired me to get cracking on that. This month has been especially hard on me with MANY unexpected expenses, reduced income, and of course the holidays. I would really have more peace of mind knowing “bill money” is separate from “other money”.
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This entire post made me want to scream ENVELOPE SYSTEM!!!! The envelope system is ‘a license to spend’, and the one endorsed by Dave Ramsey and many others. You create multiple envelopes, or wallets, in which you put the cash that you can spend that month. This keeps you from:
1) Spending too much. When the cash is gone, its gone.
2) Feeling guilty for what you do spend. You decided in your spending plan that you had $50 for Blow Money, so you don’t have to second guess your choices at the checkout. Your values are already reflected in the system, when you calmly mapped out your goals at home.
3) Doing the math in the store. You know exactly how much you have to spend at a glance, and you don’t have to pull out a spreadsheet and a calculator to determine if you are able to spring for the expensive shampoo at the drugstore.
The envelope system was one of the powerful tools that enabled my husband and I to actually stay on track through our journey. I know I’m a ‘spender’ at heart, but after tracking our spending, and creating a plan, I don’t have to worry about that. This is the license to spend you’ve been looking for, Sierra!
PS/ We’re debt free now, have a six month fund in the bank, and are paying off the house, all in less than three years. I am proof that it works!
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$40 for hair dye as an “unusual expense”? Fascinating. I can see my hair dye expenses approaching from quite a distance. There’s gotta be an interesting story there.
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Hm… I think my spending identity is best characterized as lazy.
That, in fact, describes a lot of my identity.
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Love the post. It is comforting to hear a similar identity to mine…”One week, I’ll meticulously pare down our grocery list to keep it under $100; the next, I’ll drop that much cash on thermal curtains or bike parts without a second thought.” And after reading a few other posts, it sounds like we’re not alone. I’m a late bloomer in the world of frugality and learning my Spending Identity. I consider myself relatively money savvy even though my ING account is the only account that isn’t drained long before the next payday, but this is the road I’m travelling now and I appreciate the guidance you provide. This geek is gonna get out her laminator and create a spending license today. Thank You!
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I’m both frugal and extravagant, which I think confuses people. I eat my peanut butter sandwiches at work, but at Christmastime I do love to decorate, bake and yes shop and wrap presents for my friends, family and loved ones. And when I’m on a vacation, if I’m having a meal at a restaurant and want a glass of wine, or a dessert I will order one.
I guess I try to live frugally most of the time, so a few times a year I can spend more. That way I can both afford it and it still feels like a treat.
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I can’t be the only one who read this whole thing thinking “huh?” and at the end, still didn’t know what a “spending identity” is, or how it’s anything like a lightweight budget (which it says the authors of the book mentioned at the top intended).
Sierra says that the goal of a spending identity “is to turn you into a person who knows about how much money you can reasonably spend when you walk out the door each day.”
That implies that yes, it is some sort of lightweight budget.
But then she says: ” I’ve learned ways to fool that Spending Identity into doing the right thing.” Which implies that she’s talking about some sort of psychological concept or personality trait, because how on earth would you fool a budget into a moral action?
She also says: “I’d like to have a similar built-in sense for what I can spend, and what I’d like to spend it on.” Implying that she wants an intuitive basic budgeting sense, if that’s in fact what a “Spending Identity” is supposed to be, but also implies that she hasn’t actually done that. Does she have a spending identity on paper (which the book apparently says you should do) to use until she has enough experience to internalize it? Is that even a thing that could happen, since maybe a “spending identity” is some sort of personality profile?
Going out-of-order here, but back at the top of the article, where it says “Your Spending Identity dictates who you are as a consumer,” this implies some sort of personality trait, since a budget doesn’t dictate anything to you, but the other way around. Also,
So, is a “Spending Identity” supposed to be an innate trait that I already have? Is is something I’m supposed to create? If I’m supposed to create it, how do I do that? If it’s just something I already have, what am I supposed to do with that information that’s helpful?
All I learned from this article is that Sierra likes to empty her checking account at the end of every month. I don’t know how that fits into a “Spending Identity” or why that would even be useful.
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Ha ha #3 I was thinking the same thing.
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My Spending Identity is “planner.” Which makes putting together a spending plan, and knowing how much $$ I have, pretty much second nature at this point.
It has been a matter of conscious, deliberate, and progressive course corrections, however, to craft this identity out of the ashes of “Impulsive Nitwit.”
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I’m sort of like you; I could be extremely frugal then get an itch to do some impulse spending. I bought a printer, but called it an investment because my primary use of it will be to print coupons. I’ve been measuring my spending as if it’s a splurge (something I want and don’t need), a priority (something I need, or an important expense), and an investment (something I may not need, but could help me along the way)
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You refer to your “innate” spending personality. It’s not innate. You learned to be the way you are now from your parents, other family and friends, marketing, etc.
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@18 TK
No, you’re not. I had to read the other comments to see what other folks figured what this post meant before I could think of anything to say. I was trying to be polite and not say what you just said. But now that you’ve said it I think it’s good that it’s out there. April’s last post was also pretty weak in a similar way… lots of words for very little information. But GRS can’t have a homerun every day. Every blog is going to read like a B- end of term paper sometimes.
(Heck, I’d give the post on grumpy rumblings today a C+. There are some good ideas there but it never really coalesced before being turned in.)
Donna Freedman’s post yesterday was fantastic though, A all the way.
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@22 – I think some of it is innate or personality based. I’m definitely a spender who must make and implement a plan in order to save. My sister – raised in the same exact conditions – is a saver to the point where she must be convinced to replace worn out socks. Money is not the only way that I’m more impulsive and she’s more reserved, it’s just part of our nature.
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#20 — “Impulsive Nitwit” — Love it!
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Tyler and Nicole, ack! I have to admit I cheated and checked out the book on Amazon.
I understood where she was coming from because I was self-employed for quite a few years. I used to do something I called “monster shopping” – something I’d never even think of doing today with what’s basically a new “spending identity” – or call it whatever you like. The desire to spend was almost like a compulsion that I could not control.
http://singlemomrichmom.com/feast-and-famine-and-monster-shopping/
Nowadays, I just intuitively know what to buy, what to wait for, what to not buy at all. That trip to Vegas that my friend’s going on that I’m tempted for a brief moment by (and have the money for)? Meh, Vegas-type places aren’t really my bag. The old me would never have known that. That’s where she’s trying to get.
But it’s bloody hard to figure this stuff out too when your income is really variable. It is really helpful to smooth it out unnaturally, hopefully that’s what the book review will address.
I do wonder why hair dye costs $40 though…
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I really like this concept.
“its goal is to turn you into a person who knows about how much money you can reasonably spend when you walk out the door each day.”
I coach clients on managing their finances and I see this concept working very well for about 20% of them. Great post! Looks like I have a new book to read. Thanks Bryan Cooper
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I’ve heard the hair dye that won’t cause as much damage to your hair.
Don’t dye personally…
Love this: “But my core sense of what I can afford is all over the map. Sometimes I’m incredibly frugal, and other times I’m prone to impulse shopping. One week, I’ll meticulously pare down our grocery list to keep it under $100; the next, I’ll drop that much cash on thermal curtains or bike parts without a second thought.”
I keep my heat RIDICULOUSLY low compared to many friends. Yet, I just dropped $40 on a gift for a friend I just found out was pg and she’s not 100% it’s a boy.
I think it has to do with not stopping to think, riding on emotion. 95% of the time I’m sensible, think things through, price shop, plan ahead and purchase things I know I’ll use on sale… Then every once in awhile I think I ruin all the hard work I’ve done on one purchase. Or one forgetful time of not paying the mortgage when the $ was sitting there waiting to be transferred and I think, what an idiot!
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Yes, Sierra, I also can identify with the constant struggle. I also have a difficult time managing my weight, so find that spending for me can be a source of pleasure (because I don’t eat the foods I want). I just love having “new,” although I buy on sale or in consignment – shopping IS shopping! We both live primarily on commission, so it seems I up the spending when the money is coming in because when it’s not, I have to tighten the belt. Wish I could be on more of an even keel and would like to break the emotional connection I have with shopping. My mom had the same problem, so I guess some of that is learned behavior. Anyway, thanks for giving food for thought!
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Maybe this is weird, but the thing that I kept thinking about when I read this article is the $40 for hair color. I went to cosmetology school and I do my own hair on a regular basis. I get my supplies from Sally’s. It only costs me about $6 every 6 weeks. If you have grays, use 20 volume developer, if you don’t, use 10 volume. Use a color that is the same level or darker than your natural color. Get a bottle or bowl & brush and mix it up yourself. It is easier than you may think! I don’t recommend lightening your hair on your own unless you really know what you are doing. That is my advice on hair expenses
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@Lindsay
If you knew what I spend to color and highlight my hair, you’d faint!
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