Did you get an allowance from your parents when you were young? I remember my first allowance, a whopping $2 a week! The amount went up over the years as I aged, but the allowance was always mine to spend or save as I pleased.

Fast forward to adulthood. At one time my spending got out of control. No matter how much I earned, I spent more, so I used credit cards to make up the shortfall. Credit cards charged interest, which led to more debt, which meant I had to borrow more…  Sound familiar?

If you are having trouble controlling your spending you might want to consider giving yourself an allowance. This worked wonders because it taught me to control my spending and build up my savings. Painlessly.

Give Yourself an Allowance

Here is how it can work for you:

  1. Give yourself a set amount each week. In my case I withdrew $50 in cash every week. I arrived at that amount by tracking my incidental spending over a period of two weeks. Whatever the amount, it should be reasonable and an absolute limit.
  2. Use your allowance for all incidental spending. Incidental spending might include any meals or snacks out of the house, movies, books, unplanned purchases, etc. Don’t include items that are already budgeted for such as groceries, gas, etc.
  3. At the end of the week save what is left over. Deposit any excess into a savings account. This could be your emergency account or just a “fun” account you set up for this purpose. If there is nothing left over that is OK too!
  4. Make it a game. At first it was tough to control my spending and keep it under the limit. Over time I rose to the challenge by making it a game of sorts. Every week my goal was to save as much of the allowance as I could. The reward was that at the end of the year I could use what I had saved for anything I wanted. At the end of the first year I had over $600 in the savings account (which I applied towards my debt).

Advantages of an Allowance

The advantages of putting yourself on a weekly allowance are:

  1. Freedom to spend within reason. One of the best aspects of having a weekly allowance is it eliminates the need to micro-budget every aspect of your financial life. Budgets often fail because people feel they are too constraining and don’t allow for any flexibility. An allowance gives you some flexibility with a limit attached.
  2. Teaches you to control spending. Habits are a huge factor in the way humans behave. By getting into the habit of only spending so much a week you set yourself up to maintain this habit even if you eliminate the allowance later.
  3. Reinforces the habit of saving. Saving the leftover allowance is a way of teaching yourself that saving money is just as easy as spending it. Once you start saving on a regular basis it becomes another habit that is difficult to stop.

Allowance Tips and Tricks

Don’t Cheat! The only way an allowance will work is if you are 100% honest as you use it. If you cheat, you are cheating yourself of the opportunity to relinquish bad habits for good ones.

Save even more! Do you have a budget for other types of spending, like for groceries or gas each month? Treat it the same way and deposit any leftover amount into a savings account. Make it a game and reward yourself in some way. My guess is that seeing the amount you saved over the course of the year will be reward enough!

After the allowance. Now that I am out of debt I no longer have an allowance because it isn’t necessary. Interestingly, I still spend $50 or less a week on incidentals. Having an allowance taught me that I don’t need to spend, and that saving is something fun and worthwhile to do.

Have you tried giving yourself an allowance to control your spending? How did it work out for you?






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Comments to Give Yourself an Allowance to Control Spending and Save Money

  1. Scott and I have used allowances for 10 years. It’s a fantastic way to curb your spending. Ironically, we also still take out the same amount we did 10 years ago!

    Madison

  2. @Madison — I was beginning to think I was the only one who did this! It really does work well, doesn’t it?

    Brian

  3. Hi Brian,
    Great article – this is a very effective strategy and I and my wife use it as well. We call it a “spending plan,” though, because the wife finds “allowance” makes her feel like a child and “budget” makes her feel constrained. We operate on a monthly basis and give ourselves an equal amount of money. It’s a rolling number that includes all personal spending including cell phone plan, gym, clothes, and gifts. If we want, we can spend less then the plan number and roll it into the next month. Having something like this has a lot of positive impacts. For example, if you give your wife a $100 gift from your plan money, it means more to her because she knows how much you are going to have to give up in other areas to give her that gift. We typically raise the amount each year by approximately the rate of inflation plus a small percentage so that the purchasing power stays about the same or maybe slightly greater.

    Interestingly, I started doing the spending plan long before I married my wife more as a technique to help me SPEND money! I was paying back six figures in school loans and I was so focused on it that I felt guilty when I would spend ANY money – even on food! – I was spending money that could have gone to the loans! However, I looked at the numbers and realized that I was pushing too hard. The $100/month difference between eating ramen and eating normally really was weighing on me, and with the amount that I was still sending to the loans, it only represented a very small fraction. In fact, I calculated that spending the additional $100/month on food would only delay my repayment end date by about 1-2 months – and balancing that fact was my increasing dislike for ramen. Consequently, I instituted my spending plan and set up numbers
    that provided for a reasonable level of spending on food. With the plan in place, I felt guilt-free about spending up to that number, which was a relief. Weird, maybe, but I paid off 116K worth of loans in about 42 months, so you can’t really argue with its effectiveness!

    AverageJoe

  4. This is a very good advice. The freedom that goes with this plan makes one aware of having to take responsibility for his actions as well. Nice one!

    Peter

  5. @AverageJoe — Thank you for the input! Much of good money management seems to be about dealing with the psychology behind it all. The allowance freed me as well — I didn’t have to feel guilty about spending as long as it was within the limit.

    Congrats on the loan repayment — incredible job!

    Brian

  6. @Peter — Learning to take responsibility for your spending decisions is a huge key in becoming financially free. Thank you for your comment!

    Brian


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