What the allowance does

We’ve talked about our families’ experiences with allowances before.  But here are some more meta thoughts on the subject.

An allowance is a mini-budget but looser.  An allowance can be greatly mentally freeing, even as it constrains.

Like a budget, it gives you a budget constraint.  That forces you to make choices and to prioritize.  However, this prioritization is only for the set of discretionary purchases.  The regular non-discretionary purchases are set separately and hopefully automated.  That focus on a smaller choice set makes the allowance much less overwhelming than a budget, and since allowances are generally only over fun money (what you *can* spend rather than what you *have to* spend), they can even be kind of fun.

Weekly allowances are also helpful for people with time inconsistent preferences.  It may be difficult to wait a month until payday to purchase something, but most people can wait a week.  And a week’s reflection can help decide whether a potential impulse purchase is worth the impulse.

Allowances are also good for people who have a hard time spending money.  If you have a specific allowance, it allows you to spend a certain amount guilt-free on whatever you want.  You know you can’t go over a certain amount of money and this money is the money that’s earmarked as ok to spend.  It allows people to loosen up those tight chains a little bit to buy little luxuries (or whatever else it is that money can help ease).

Still, allowances aren’t for everyone.  We don’t really feel like they add to our happiness, but they definitely add to many people’s, including at least one of our partners.

What are your experiences with allowances?  If you’ve used them, have they helped, and if so, how?

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12 Responses to “What the allowance does”

  1. First Gen American Says:

    I am starting to “schedule spending”. I am particularly bad with waiting way too long to buy clothes as it is so hard to find nice clothes that fit right, and I hate purchasing clothes I never end up wearing because the fit is off. I think I realized I need to put more time into searching for those perfect pieces and then buy them in every color once I realize they work for me.

    I usually don’t need to budget or give myself allowances but I like having savings goals and milestones.

  2. Perpetua Says:

    I got through graduate school with no debt partially by giving myself a weekly allowance. In cash. The allowance didn’t include utilities or other bills; it was my spending money. (Spending money = anything that’s not a bill. So my morning coffee came out of my spending money, etc.) It helped me enormously to be able to see it and think about my expenses for the week. I always ended up with enough at the end of the week to go out (though I was careful about not drinking my money away; booze is expensive!) or whatever I wanted to do. I lived simply, and watching the cash dwindle helped.

  3. Debbie M Says:

    I don’t exactly have an allowance, but some of my budget categories have similar effects. Especially my fund for “long-term fun,” which I use for things that are so expensive I have to save up for them (mostly electronics and vacations; used to include furniture). That one lets me know when it’s okay to splurge and when I really shouldn’t.

    I also really like having calculated a certain amount for charitable contributions and having a strategy for how to spend that–it helps me refuse requests that don’t live up to my standard with no guilt because it also makes it easy for me to contribute the full amount I have planned.

    It’s so easy to forget about all the other budget catagories when you get focused on one, and having a whole budget keeps that tendancy from wrecking my plans. Especially since I re-evaluate my budget once or twice a year (whenever my salary changes, whenever there’s a big change in expenses such as utilities and property taxes, and whenever I start to think that I want so strongly to increase one budget category that I’m willing to shrink other ones to get it).

  4. eemusings Says:

    An absolute godsend. I’m not a spender but the partner is.

  5. femmefrugality Says:

    I used to get paid once a month. I guess I kind of used an allowance, but I was giving it to myself. It didn’t make me spend guilt free, though. I’d save it all up in my savings account if I didn’t spend it. So then I’d feel guilty for spending my extra savings. I’ve got issues.

  6. NoTrustFund Says:

    As I read this I was thinking we don’t really use allowances. However, Debbie reminded me that we do for charitable giving. A few years ago we started giving based on a % of our income (not novel I know). It’s been great. It allows us to change our giving with fluctuations in our income and also forces us to figure out where we really want to give our money.

  7. Rosa Says:

    I used a cash allowance for myself right up til I had my son and became a stay at home mom – it was really easy, because I got a paper check and took it downstairs to the onsite credit union, put it in the account and took the cash out. Then I had all the money I was going to have for that pay period.

    It’s harder now, because if I make bad choices they don’t just affect me – i can’t just feed us all ramen for a week til payday (or I could, but I can’t quite justify it since I don’t actually have to), I can’t just make kiddo walk in the cold because I’m out of bus money, or wear a coat that suddenly doesn’t have a working zipper (I have never in my adult life worn out a winter coat; the child has worn out 2 and of course outgrown 4 or 5 more)

    So I’m juggling a bunch of categories (groceries, clothing, transportation) that all need to be budget-managed, instead of one pool of “everything that’s not a fixed bill.” I’m still not very good at it.

    • nicoleandmaggie Says:

      Hm, we are guilty of our kid wearing things that don’t have working parts. For example, DC1 goes through shoelaces crazy fast. We should really buy them in bulk.

      That aside, it is definitely harder with kids. We have priorities that don’t fit with “gazelle intense”.

  8. Carnival of Personal Finance: Thanksgiving Preparation Edition Says:

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