If you are not spending in your 20s, you’re doing something wrong

Don't spend less thann you earn

I followed this piece “If You Have Savings In Your 20s, You’re Doing Something Wrong” on Elite Daily with some interest . I felt a great disturbance on social media as it went viral, as if millions of financially responsible voices suddenly cried out, and immediately tweeted it. I fear something terrible has happened.

I’m a little late to the party as most of my personal finance brethren have chimed in.

Trent Hamm from the Simple Dollar wants us to do something right:

Mr Money Mustache thinks we should all get rich in our 20s:

Chelsea Fagan seems a little angry:

There was even coverage on the Times, Forbes and HuffPo. I reacted with anger too at first. But I’ve since realized it was a fascinating piece on human behavior. Something I love to learn more about. I’ll first address the threads running through the article, then provide some actionable tactics.

The points covered :

  • Looming doom from parents
  • Guilt about spending money
  • Money should be used on experiences

Looming doom from parents

I’ve felt this acutely in my life. You haven’t experienced nagging until you grow up with Asian parents. My parents loved to expound the “virtue” of saving. But they couldn’t follow their own advice. My parents made plenty of money, yet couldn’t afford education (subsidized by the government) for me in Singapore. They tell me how everything is so expensive but get the latest BMW (about two hundred thousand in Singapore) when it strikes their fancy.

So they tell me to save. The effects of aging comes to all of us. Our bodies slows down as we get older. We can’t see it because we haven’t felt the effects. But our parents are much closer to that age. You can bet they are feeling it. They know they can’t earn as much as they age because their physical and mental abilities are declining.

They feel this sense of looming doom because they’re not prepared financially. The Center for Retirement Research at Boston College estimates more than half of all American households will not have enough retirement income to maintain their previous living standards. It’s the same story in Singapore. And they’re guilty they’re not. Some probably think they should have been a little wiser with their money. And this spills over to us, the younger generation. They don’t want us to go through the same thing.

Unfortunately, they go about it the wrong way. They more they push us to save, the more we do the opposite.

Guilt about spending money

For years I wondered why people behaved the way they did. I tried teaching people around me how to manage their money. No matter how I tried, how much I shouted, I just couldn’t get through to them. I’m an engineer by training. I thought education was the answer. After all, that’s how we solve engineering problems. Just get educated!

Engineers all think that marketing and psychology is bullshit. (Sorry, marketing guys, this is what engineers think, read Dilbert and you’ll know what I mean). It wasn’t until I chanced upon Dr Robert Cialdini’s, Regents’ Professor Emeritus of psychology and marketing at Arizona State University, book “Influence: The Psychology of Persuasion” that I knew I was wrong. This book dramatically changed my understanding of human behavior. It outlines how our brain behaves in automatic, mechanical ways. This bowled me over! There’s a program running below our conscious thought processing information for us. It’s more like software than I thought!

It’s not as simple as spend less than you earn

Society loves simple answers like “spend less than you earn”. Just like we like to tell fat people “eat less and exercise more”. Every single one of us spends how much we spend because of what’s around us. We overspend not because we want to, but because of family and friends, signboards and billboards, packages and wrappings, brand names and store names. The list is endless. We, and especially my engineer friends, love to think we are too smart to be tricked by signboards, packages and brand names. We acknowledge that others around us might be duped, but never us.

I’ll give an example. I accompanied my friend Harry to the Apple store to get an iPad. He had wanted the cheapest one originally as it met his needs and was within budget. As the Apple store, the sales person showed us the cheapest iPad first. There was 10 or so movies loaded up. Then he showed us the most expensive model. This one had way more movies and apps on it. Harry decided to go with the more expensive model after all.

The sales person then waltzed us around the store to show us some other things our proud new iPad owner “might need”. New iPad covers (for different occasions), AppleCare (hey, you never know when you might spill coffee on it) and new earphones (how are you going to watch your movie on the subway without better earphones?). Harry decided to get them all.

The secret influences all around us

I used to laugh at this event. Not anymore. Robert Cialdini explained this in his book. When we see two different things one after the other, we tend to see the second one as more different from the first than it actually is. This is the contrasting principle. You can try it out yourself. Lift a very heavy object first. Then lift a light object. You will feel that the second object is far lighter than if you had just lifted the lighter object by itself.

That’s why behavior change is so difficult. More education isn’t the answer. There wouldn’t be any fat or poor university graduates if it was. Last I looked, we have plenty of both. Everything influences our behavior to some degree. And I love when people say they are immune to advertising. Yet, they buy Levi’s jeans, Nike shoes and Tag Heuer watches. The guilt we feel from spending comes when we didn’t really want to spend on that in the first place.

Money should be used on experiences

That being said. I’m not part of of the ultra frugal crowd either. There’s where the article touched me. Money in our bank account doesn’t make us any happier. Money can buy happiness. Only if you use it for experiences.  I never feel guilty spending extravagantly for my wife’s birthday. Experiences are something to be enjoyed. Traveling is also something my wife and I do together pretty often. It broadens our horizons. But this is an activity that can’t be covered in one pay check.

So how do we spend without feeling guilty?
How do we plan for the future yet enjoy our present?

Priority Spending Plan

This is what a Priority Spending Plan contains:

  • Bucket list
  • Fixed payments
  • Guilt free spending money

1) Bucket List

Write down what’s on your bucket list for the next few years. No need to get them all down in one seating. Just the top 2 or 3 off the top of your head. Whether it’s your trip to Iceland or your wedding, estimate how much it would cost and put down a date when you want to achieve it.

2) Fixed payments

This is anything that you know you have to pay for. Subscription services like your mobile or gym payments go in here.  You’ll want to put down a sum for regular investment. And 5% of your take home salary for a “I forgot about that” fund here.

3) Guilt free spending money

Use this formula:
Take home salary - Sum of bucket list - Sum of fixed payments = guilt-free spending money.
This is whatever you have to spend for the month. You just have to track this sum of money. No need to split and categorize. If you want to buy a round of drinks for your friends or get that early cup of coffee, go ahead. Just make sure you have enough for the month so you don’t go into debt. I go into more detail about how to automate this here.

How is this different from a budget?

The differences are subtle but powerful. A budget is just a bunch of random categories which makes us feel guilty when we don’t keep to it. No one ever keeps a budget. In a priority spending plan, you decide what you want to spend on first. Then what you want to cut down.

The commitment and consistency principle

There was an experiment conducted by researcher Thomas Moriarty (not related to the one in Sherlock) that was published in the Journal of Personality and Social Psychology. In the experiment,  researchers staged the theft of a radio from a blanket on New York beach. Normally, most bystanders are reluctant to stop a theft because, well hey, they might get injured in the process. Just a simple tweak increased the success rate by 75% (from 4 in 20 to 19 in 20). All the researchers did was ask someone nearby to watch their radio for them. Immediately, bystanders would jump up and stop the “thief”. Some of them even physically held the thief down and ripped the radio away from him. Man, I pity the “thief”. Guy must have drawn the short straw.

The bystanders were committed when they agreed to watch the radio. When it was being stolen, the bystanders had to act in a way that was consistent with their agreement. Short circuiting the whole “it’s not my problem” effect. I’ve talked about “Influence” 3 times in this post. Get a copy of it yourself here. (Affiliate link)

The Priority Spending Plan uses these powerful influence principles to our advantage. Once you write down your bucket list, you will find it’s easier to cut down on other areas that you don’t need. You will find it easier to say no to your friends. “I can’t go out this week because I’m planning to go to Iceland”. That’s because you know what you really want to spend on. You can’t just keep this plan in your head though, putting it down will make it easier to remember. I came up with a spreadsheet to help you.

Fill up this form and I’ll send the Priority Spending Plan spreadsheet to you.

Please provide your name and email address for your free download.


  1. Great article! The length and depth shows that you have made quite an effort into writing. I personally adopted the zero-based budgeting and I am managing well so far, though I have went into deficit for some days for food expenses(dining with friends), and also on entertainment and books. Probably I have already failed my budgeting by buying a ergonomic chair that I believe will be better for my back in the long run without even assigning dollars to it. It’s just so hard to resist, though I believe if it helps my future self, I think it’s fine to spend that one time. After all, if not now, then when? In the future where my back could be pretty terrible.

    I like your “money should be used on experiences”. Continue writing!

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