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How to curb 'forgetfulness' in your discretionary spending

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(Read caption) Taking your disposable income out in cash, and using it for discretionary purposes throughout a given month, is a good method for spending exactly what you want to.

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Sarah and I have a pretty solid arrangement with regards to discretionary spending that tends to work well for us. Simply put, we talk about our goals so often that we basically trust each other when it comes to discretionary spending. It works for us because we’re on the same page when it comes to spending money in that we’d rather both hit our long term goals than have some of the short term things that don’t mean as much.

That doesn’t mean that we don’t both spend money unnecessarily – we’re not hermits, after all. Sarah’s big weaknesses are books and “natural” goods. Mine are books and board games.

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For me, at least, I will sometimes pick up a book that I’ve been wanting to read without really thinking about it. I also do a lot of book and game trading via the mail, so sometimes postage can add up.

A few months ago, I went on a big “trade by mail” tear and burnt through quite a bit of postage without thinking about it too much. At the end of the month, I took a look at our remaining money in our checking account and it was notably lower than I expected.

This wasn’t a real problem – after all, we’re talking about having maybe 5-10% less than expected, not anything approaching an overdraft. Still, it raised some alarm bells for me.

Little purchases happen all the time. Someone buys gum in the checkout aisle. Someone else buys a beer after work. Another person might pick up a few rented movies.

Little purchases can also add up. Spend $3 on average each day and forget about it and at the end of the month you find yourself with nearly $100 in shortfall.

How exactly can I handle “forgetfulness” in terms of discretionary spending?

I’ve put a system in place to help me control this type of financially flawed forgetfulness.

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First, I simply take out a small amount of cash each month from my checking account. This is more than enough to cover the postage on the packages I mail out and cover a few small incidental purchases.

I essentially use that withdrawn money for all of my little purchases over the course of a month. If I mail a package that’s related to a hobby, I use that cash. If I buy a pack of gum at the store, I use that cash. If I pick up a book at a bookstore, I use that cash.

I don’t really worry about keeping track of it as long as I have some remaining cash in my wallet. I recognize that little things like this will happen and I’ve alloted some money for it.

If I find that my cash has run dry, then I start paying very careful attention to my discretionary spending. Often, I’ll just completely say “no” to any such small discretionary purchases. The exception to that is if I’ve pledged to trade something by mail, in which case I usually go ahead and mail it.

If I splurge beyond that “discretionary spending” amount in a given month, I withdraw less next month. This way, I don’t begin to establish a new standard for how much I can spend a month. If I’m suddenly allowing myself to spend $40 more a month without thinking about it, then I’m probably going to find ways to thoughtlessly spend that $40.

One key part of all of this is that I’m pretty happy with my level of discretionary money right now. It gives me the freedom to buy some little things, but it also safeguards me against interfering with the big things that I want. I don’t resent the amount because I know that I usually don’t need the things I’m buying with it, I have the freedom to use it however I’d like, and the rest of my money is going toward more important things.

It’s actually pretty liberating, in a way. I don’t have to micromanage purchases in the moment and I also can feel confident that the long term is taken care of, too. For me, it’s a win-win approach to the little purchases in life.