The Psychology of “Treat Budgets” – How Small Splurges Can Boost Long-Term Savings
Summary:
This article explores the concept of “treat budgets” – small, guilt-free spending allowances that help prevent financial burnout. While disciplined saving is crucial for wealth-building, strategic small indulgences can actually reinforce long-term financial habits by satisfying psychological needs. The piece explains how to implement a treat budget using the 50/30/20 rule while avoiding the pitfalls of “revenge spending” that derail savings goals.
What This Means for You:
- Allocate 5-10% of discretionary income for guilt-free spending to prevent financial deprivation burnout
- Use the 50/30/20 budget framework (30% for wants) as a guideline for your treat allowance
- Create a “wish list” system to space out treat purchases for maximum satisfaction
- Warning: Unplanned large splurges can undo months of savings progress – always cap treat spending
Original Post:
It’s no secret that the trick to building wealth is investing over time — and that entails saving money you might otherwise want to spend.
But while it’s a good idea to focus on the long term when investing, you want to refrain from saving so much that you end up “revenge spending.” The term refers to splurging after a period of restricting, like if you limit your spending strictly for six months, but then go to the mall and make several impulse buys that undo much of your hard work.
Treating yourself from time to time shouldn’t make you feel guilty, as long as you do it in moderation. In fact, this type of spending can actually help you stick to your long-term plan better, thanks to the psychological benefits.
The benefit of a ‘treat budget’
It takes discipline to make spending decisions that support your long-term savings goals. Allowing yourself a reward in the form of guilt-free spending can help you stay consistent. So while spending money on non-essential items may not feel like a financially savvy move, it can prevent a large impulse buy in the future that wasn’t accounted for in your budget. Those big purchases may come about if you feel like you have been depriving yourself on your financial journey.
How to use a ‘treat budget’
To spend on your non-essentials responsibly, you’ll need to determine the size of the budget and put a plan in place.
Define your ‘treat budget’
Your “treat budget” is a small amount of money that you set aside for guilt-free spending, like dining out with friends or buying a new book. It will vary for each person, depending on your income, savings and goals.
The 50/30/20 budget allocates 30% to “wants” and can be a helpful guide.
Create an action plan
Once you establish how much you want to spend each month, determine what makes sense for you in terms of how to spend it. You can even create a list of things you would like to buy with guilt-free money and space out the purchases throughout the year.
Extra Information:
NerdWallet’s 50/30/20 Budget Calculator – Helps determine appropriate treat budget allocations
APA Money Psychology Resources – Explains the behavioral economics behind spending habits
People Also Ask About:
- How much should my treat budget be? Typically 5-10% of discretionary income after essential expenses.
- Does treat spending affect retirement savings? Not if properly budgeted – it may actually improve savings consistency.
- What’s the difference between treats and impulse buys? Treats are planned, budgeted indulgences while impulse buys are unplanned.
- Can I roll over unused treat money? Yes – this creates a larger future budget for special purchases.
Expert Opinion:
“Behavioral finance research shows that completely depriving yourself leads to eventual financial relapse. The most successful savers build in measured rewards – it’s the difference between a crash diet and sustainable nutrition,” explains Dr. Sarah Johnson, behavioral economist at the Financial Wellness Institute.
Key Terms:
- Behavioral budgeting psychology
- Guilt-free spending allocation
- Financial self-care strategies
- Revenge spending prevention
- 50/30/20 budget customization
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