Worry-Free Money

People do a lot of worrying about money whether they are doing well financially or not. The truth is that most people just don’t know if they’re on the right financial track. Certified financial planner Shannon Lee Simmons offers solutions to this problem in her book, Worry-Free Money. I think her methods could help many people feel more in control of their finances.

“If you don’t know what you can and cannot actually afford, every purchase feels terrifying.” It must be difficult to feel vaguely guilty every time you spend even small amounts of money. I’ve seen this guilt in some of my extended family members.

Simmons is adamant that budgeting “is not the answer. Budgeting makes you feel truly broke, which leads to overspending, under-saving and general anxiety about the future.” Despite her repeated criticisms of budgeting, her approach looks superficially a lot like budgeting. But there are important differences.

We all have moments when we abandon our usual spending rules. Simmons calls these “F*ck It Moments,” and says they are actually a big source of overspending. Attempting to stick to overly-restrictive budgets causes many such moments. “Trying to live frugally is the problem. Instead of helping us to gain control of our finances and our lives, it perpetuates the guilt around spending on anything that makes us happy. Guilt inevitably leads to frustration and hopelessness. Eventually you simply give up.”

Another cause of overspending is the “Inadequacy Influence.” Sometimes we see spending money as a solution to not feeling good enough in some way. Her remedy is to compile a “Life checklist” of the things important to you. This then helps you recognize potential spending that isn’t on the checklist, and recognize that your temptation to spend is likely due to some feeling of inadequacy. Social media can be a big contributor to feeling inadequate.

Simmons’ replacement for budgeting involves identifying fixed expenses, contributions to meaningful savings, and contributions to short-term savings. Money in these categories is automatically moved to a separate chequing account. Whatever is left over is “spending money” in a different chequing account. This left over spending money has a “hard limit” each pay period. If you run out, you have to wait until your next pay period, but the important things in the first three categories remain safely handled.

“By isolating the amount of money you can spend to zero in your Spending account each pay period, you don’t have to guess about affordability anymore.” The basic idea is that spending money doesn’t have to be tracked or budgeted as long as the important things are squared away.

To avoid getting into trouble with credit cards, Simmons recommends that you “transfer the money from your Spending account to that credit card every night.” This may seem onerous, but it’s much easier than trying to dig out of credit card debt.

When her clients have problems with overspending, she has them rate their spending on a 1-5 scale from unhappy spending to happy spending. The goal then is to reduce spending that doesn’t make you happy. This part involves analyzing where your spending money goes, which resembles budgeting. But it’s more of an infrequent analysis of spending than it is a month-to-month budgeting exercise.

The book contains many interesting examples of people in different financial and life circumstances. Each example contains lots of detail about people’s lives and finances. Simmons offers rules of thumb for limits to different types of spending expressed as a percentage of take-home pay. One nitpick is when she says a change reduces a person’s spending money by 10%, she actually means it went down by 10 percentage points. For someone taking home $5000/month and having $2000 in spending money (40%), a 10% drop in spending money is $200, and a 10 percentage-point drop is $500.

To avoid feeling pressure to spend money for social reasons, Simmons recommends talking about money with friends and family. She says they’re much less likely to try to force you to participate in something if you’re honest about it just not fitting into your spending plan. She even offers 5 steps on “Hot to Say No without Guilt.”

In one example about a man fixing his finances after a divorce, the author concludes that “taking money from his retirement account didn’t make sense because much of it would be taxed at a higher rate than the interest he was paying on his credit card.” There are good reasons not to touch retirement savings, but comparing a tax percentage to a credit card interest percentage makes no sense at all. You might as well decide to buy a car instead of a house because the car has more tires than the house has bedrooms.

If you’re considering moving in with other retirees after you retire to save money, Simmons says you should “have noise rules in place, ... set up a shared household repair fund, address what happens if someone wants to move out or passes away, and get a lawyer involved to put it all in writing.”

Referring to a couple who had eliminated their car loans, line of credit balance, and credit card balances, but still had a mortgage, Simmons wrote “and best of all, they were debt-free.” I find it strange that some people don’t count a mortgage as debt. It’s certainly different from other types of debt, but it’s still debt. I’m disappointed to see a certified financial planner thinking this way.

Overall, I found Simmons’ approach to managing personal finances interesting and potentially helpful for many people. If I were trying to help family members or friends devise a plan to spend within their means, I’d use this book as a guide to a realistic plan.