Mean Reversion and Overcoming Spending Guilt

Sometime around 2010, I became deeply interested in my personal finances. I started to track where my money was going, and scrutinize the spending decisions I was making.

When I first discovered financial independence- the idea that I could chop 30+ years off of my working career through conscious life decisions- I was elated. Spend less, save more, and profit.

As I detailed in my path to FI, the first steps were easy. I immediately called around and reduced my insurance premiums, cut the cable bill, and moved my phone to a budget service provider. Then I found the line items in my monthly spending that were extraneous, and eliminated them. At this point, I had knocked off roughly $1,000 per month in spending with minimal effort.

The Inflection Point

But once the quick fixes has been taken care of, it got harder. The next, and subsequent, layers of spending cuts and optimization were significantly more difficult, from both a logistical and psychological perspective.

I started to eliminate things I enjoyed, things that brought value to my life. Sure, the subscription to a DIY maker community I never used was pretty easy, but cutting the New York Times weekend delivery left my Sundays feeling a little empty.

I started to skip social events with my friends because I knew it would be at least $40 on wings and beer. Then I stopped going to the occasional Friday lunch with coworkers to avoid the $10 bill for a sandwich.

I distinctly remember having a conversation with a coworker one day, where I balked at the idea of doing something because it would cost about $5. I can’t remember what the event was, but $5 was a paltry sum for the enjoyment I would get from the event.

“When did you get so cheap?” he said to me.

That’s when it hit me. I had gone too far.

I was penny pinching at social dinners with friends, and scrutinizing purchases that were literally pocket change. At some point I realized that my unending quest to trim my budget had made me miserable.

Mean Reversion

In statistics we learn about the concept of reversion (or regression) toward the mean. The basic idea is that, for a given set of data, there is a long-term trend line that represents the average of the data (ie., the trend). Although the data may vary over time, it will always hover around the average.

In the case where outcomes are directly under our control, we tend to overshoot to the upside/downside on a regular basis. Once we realize that we’ve overshot our goal, things will correct. You can see this in almost any stock chart or graphical representation of economic data. Mean reversion is part of life.

My personal finances, and especially my spending patterns, are an example of mean reversion. In my early and mid 20s, I wasted money like a champ. After discovering financial independence, I started to rein in my spending, but I was still prone to a periods over over-spend, followed by under-spend, etc…

In the case I referred to above, I had overshot to the downside. Hard.

In order to address my problems, I needed to address the guilt and shame associated with spending.

Spending Guilt

Sometime during my journey to optimize everything and automate my life, I lost sight of one thing: my own well-being. I was so caught up in the idea of cutting expenses to the bone that I stopped caring about how I felt.

There is currently a movement, lodged in the center of FI culture, which is a backlash against the mindless consumerism that is pervasive in our society. Some call it Mustachianism; others call it minimalism, or frugality. The underlying premise is that we need to cut back on our consumption, especially when it interferes with our fiscal (or physical, or mental) well-being.

I whole-heartedly buy into this idea. “Keeping up with the Joneses” can ultimately wreck people’s lives and make them miserable. The problem is, doing the opposite can be equally as damaging. It can lead to things like self-deprivation and unhealthy attitudes toward money. Think of the spending equivalent of body shaming. We’ll call it Spend Shaming.

Without even realizing it, I fell victim to spend shaming. And it was entirely self-imposed. When reading other bloggers’ spending reports and net worth updates, I felt inadequate in my own pursuit. Why did I own a newer car? How could I blow $50 at the bar on Saturday? Why can’t I live on $25,000 a year?

Money Dials and Mindfulness

The solution came through re-framing my perspective.

Ramit Sethi’s book (and blog) titled I Will Teach You to Be Rich is an excellent resource for developing the right money mindset. Through his instruction and example, one can develop systems to reduce anxiety about money and achieve financial goals that seem unattainable.

To me, the most important idea that Sethi communicates is the concept of money dials. You can read all about money dials here, but this is the gist:

Spend lavishly on the things you value, and cut spending ruthlessly on the things you don’t value.

That’s it.

Armed with this new idea, I started to look at my life and finances in a new light.

I created a list of things that matter the most to me, which looked like this:

  • The overall well-being of my family
  • Social relationships and my sense of belonging/purpose
  • My physical health
  • My general feeling of peace and lack of anxiety

I then used this list of priorities to shape my spending decisions. Here are some outcomes of my new spending framework:

  • We will be moving Baby BF from a (relatively) inexpensive home daycare to a high-cost pre-K in the next 6 months.
  • I am buying back time whenever possible. For instance, paying for my neighbor’s lawn mowing services to save me the 2-3 hours of weekly yard work.
  • Unlimited budget for craft beer!
  • Saying yes to special events, like the occasional dinner with old friends and seeing my favorite bands play live.

When viewed through the money dials mindset, it becomes easier for me to spend on this list of things without feeling spending guilt. If I’m consciously spending on something that has great value to me, then why should I feel shame?

No expense spared on pet lobsters!

On the flip-side, here are some things I refuse to waste money on:

  • Insurance: it’s a necessity, but I make sure that I’m paying the minimum and check for a cheaper alternative every year.
  • Clothing: I basically wear things until I have holes in them. To be more specific, I replace clothes when the hole becomes large enough that it borders on indecent exposure.
  • Household goods: our entire home consists of furniture and goods that have been cobbled together between thrift shops and Craigslist. There’s not a single piece of furniture in our home that has cost more than $200.
  • General extravagance: Mrs. BF and I typically go out to dinner a couple times a month. But we don’t go to the trendy new Michelin-rated money pit. Normally it’s the local Thai or Indian hole-in-the-wall that’s BYOB and costs us $30 with tip. I don’t need some snob serving fish eggs in order to enjoy my night out!

Finding a Balance

It has taken me a long time to reach my current mindset regarding money. In some ways, the years of being oblivious to my spending habits were easier than the following decade of scrutinizing all of my money choices.

Ultimately, the key is to find the balance. We all make the occasional poor spending decision, but it’s easiest to recognize what you can control and stop worrying about the things you can’t. A Fiscal Serenity Prayer.

Right now, we’re in a high-spend period of our lives. Mrs. BF is half-way through her indentured servitude on the path to Public Service Loan Forgiveness (PSLF). We’re trying to pay off our home in a quasi-accelerated manner in order to reduce our costs in retirement. And we’re dropping scads of money on diapers and childcare, which isn’t going away any time soon, considering Baby #2’s coming in February.

Tax Credit #2- coming early 2020!

The bottom line is that we’re spending on the things that align with our goals and priorities. As long as I can defend (to myself) the reasons for our choices, there should be no spending shame.

Has spending shame ever affected your actions, or given you unnecessary guilt? How do you keep from comparing yourself to others, even when you know you shouldn’t? Let me know in the comments.

13 thoughts on “Mean Reversion and Overcoming Spending Guilt”

  1. hey adam, congratulations on your impending tax credit/baby. you gotta spend on some stuff you enjoy. that’s for sure. i still buy directtv, which is practically unheard of in this day and age of frugal cord cutting. that’s the content i want to consume. most of it consists of pro sports and i talked to the mrs. about it a couple of years ago and her reply: “you really seem to enjoy that.” the “dummy” was implied in the response. i really love BYOB restaurants because i hate wine list pricing.

    if we were struggling with finances or behind i would go back and reexamine all those things and optimize them but we’re not. it’s like a side hustle that doesn’t pay much. if we needed to drive an uber just to make ends meet then we would be hauling around people we don’t like to try and get a leg up. oh, and mrs. smidlap goes out to spend a little and socialize and i just ignore that too. i stay home a lot but i don’t want to vote on her little outings that bring her joy. it’s not like it’s a monthly trip to paris or anything. it’s just a concert and some appetizers at the bar kind of thing.

    • Thanks, yes it sounds like you have the right plan. I think it’s a Pareto thing- I can get 80% of my necessary enjoyment from a couple social events or dinners here and there. It doesn’t make sense to starve yourself from enjoyable experiences to speed up FI by 2 weeks. BYOB restaurants are definitely where it’s at, because all the cost is usually in the drinks.

  2. Congratulations on the baby!!

    You hit the nail right on the head, balance is the key. Skewed to any of the extremes on the spending scale, life doesn’t stay life anymore …hope everyone out there finds their balance.

    Congrats again.

    • Thanks for the congrats! It’s funny how obvious it sounds when you say it out loud (“find the balance”), but in practice sometimes it’s really difficult to notice when you are doing something that deprives yourself of the enjoyment we all need in life.

  3. A lot of spouses would not be OK with super econo furniture but as long as yours is that’s great. I think the important thing is that a couple spends on the things either of them value and cuts ruthlessly on the things neither of them value. But it really pays to make sure that you are on the same page on the things you go cheap on, otherwise there will be some resentment. Good post, we spend more than a lot of people but only on things we value and never close to what we can afford.

    • Thanks Steve! My wife is actually the ultra-frugalist, owing mostly to her upbringing. There is also an environmental bent that I didn’t mention: buying used furniture (baby things, etc…) prevents those items from going to a landfill and possibly limits the demand to create more junk for us to buy. But yes, we are definitely on the same page when it comes to the things we spend on.

  4. I love this post and congrats on baby #2! I have been thinking about this a lot and I believe I am still working on sitting in the middle. Overall, I feel like I’ve gotten really close in the last year to a nice median ground of spending on things I want, like going out to eat and coffee, while still saving for big upcoming expenses and retirement.

    I plan to majorly increase my savings/retirement contributions next year because I’m currently quite a bit behind, but I will still have a good amount to spend on myself, which I think will make me happy.

    Again, loved this post! I think we often focus too much on the extremes.

    • Thanks Liz! I remember your treadmill post, so I know that you spend on the things that matter to you. Also, you’re still in a transitional period with school and everything, so it’s hard to have all of your financial ducks in a row before you’re settled.

  5. I can really relate to this psychological roller coaster, and I love the connection to statistics (even though it’s been a loooong time since I’ve thought about mean reversion:)

    I still struggle immensely with spending any money on myself. I remember five years ago I thought I’d feel set if I made what I make right now. Instead, I’m just as anxious as ever. I think it has to do with a broader interpretation of the world. (For example, if I watch the news, I really don’t want to spend money because I’m in a state of fear and I don’t trust that this nation has my back – or my future or kid’s future – only I can do that.) Now that I have a child, I struggle even more with spending anything out of ordinary on me. I know this is responsible to some extent, but I don’t want to be so responsible I’m resentful of anything.

    Anyhow, it’s been awhile since I’ve read anyone articulating this so well. I clearly have some work to do on myself before hoping for baby #2! Congrats by the way! Feb. will be here in no time.

    • Thanks! I would definitely say that having a child galvanized some of my attitudes toward money, and made me more conscious of our spending. Thankfully, we were already in a fairly secure financial position by the time Baby BF was born, so it hasn’t really increased the anxiety around money too much. We’ll see what happens after we double our diaper/daycare budget!


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