Spending Money You Don’t Have Is A Recipe For Disaster

I received some good news at the end of last year. Our company will be giving a small across the board salary adjustment, an increase of 2%, starting in April of this year.  We’re in the health care industry and the organization, like many, has been going through significant cost reductions over the last year.  We’re a non-profit and have been healthy from a financial standpoint for many years, but there is an expectation that revenues will take a hit with the reduction in Medicare payouts from Obamacare.  As a result, things have been pretty lean, so it was a nice surprise that we’d be getting this adjustment.

I told my wife and she was very happy as well, and instantly wondered out loud, “How much will that work out to be and what will it go toward?”

I did a little math and told her an approximate figure of how much extra would be coming in, but then gently reminded her that the increase was not set to hit for another three months, and we agreed that doing any allocation or even thinking about it wouldn’t be a wise idea.


One of my favorite movies ever is a Christmas movie that I watched plenty of times last month: National Lampoon’s Christmas Vacation.  That movie has so many funny parts that it’s impossible to keep count.  But, for those who many not have seen it (such people exist?!?), one of the main storylines involves the main character worrying over a Christmas bonus that he hasn’t received, which is important because he put a down payment on installing a swimming pool.  The bonus was needed to cover the deposit.

I won’t give too much away, and for those who know, the payoff is pretty sweet, but the heart of the matter comes down to the fact that the problem arose because of the fact that he was spending money that he didn’t yet have.  Although it was a movie, and pure fiction, the reality is that this type of behavior occurs far too often.

Examples Of Spending Money You Don’t Have

  • Raises or bonuses – As noted, raises and bonuses are nice, but they should not be counted on.  Many people count on getting a raise or bonus because they get one every year, and get surprised when the one year rolls around where it doesn’t take place.  If you’ve spent or committed money that won’t be coming in, you could be in trouble.
  • Inheritance – Many individuals count on getting an inheritance, and are often disappointed.  A variety of events can lead to this.  A person could think that they are going to be left money or property, only to find out that they are not.  The person that passed may have not had as good a financial situation as had been believed, or the person could have had costly medical needs that ate away their savings at the end of their life.  Regardless, even if you’ve been told that you will be getting an inheritance, one should never count on it until the moment that the money is truly yours.
  • Selling large ticket items like homes or cars – Many people, when looking for a new home, anticipate that the equity they have in their current home will function as a down payment toward their next house.  If the current home sells for less than anticipated, this could result in a tricky situation for all involved.  This doesn’t happen just for homes, but can happen on car trade-ins or other purchases where the real pool of money to be allocated toward a purchase may not been anywhere near as large as hoped or expected.
  • Selling gold, jewelry or other such items – When the price of gold was skyrocketing several years back, it was common for people to take old jewelry in, only to be surprised when they didn’t get the price per ounce that they’ve seen on the news.  Many people forget that there’s a profit that needs to be built in for the person that will buy your items and have to re-sell them.  Expecting to get full retail value on items can lead to disappointment.

There are a whole host of other examples that could be used here, from investing to pensions and the like.  The main point is that regardless of the source of expected money inflow, it’s a dangerous practice to count your money before it’s in your hand, and even more dangerous is to spend that money before you have it.  Doing this can lead to financial ruin.

Protect yourself and count your money only after you have it.

Readers, have you ever or known someone who made a costly financial move because they counted their money too early?  Share in the comments below.

10 thoughts on “Spending Money You Don’t Have Is A Recipe For Disaster”

  1. I am one of those people who always look forward to their bonuses. Yay! I even used my credit card limit before I got my Christmas bonus. So, all my bonuses went there to pay the bill, and I even added more to pay it off.

  2. I absolutely love Christmas Vacation. We watch it almost every year. I can’t really relate to bonuses because I don’t get them as a teacher, or raises for that matter, either! But I can see the potential danger in relying on money that hasn’t hit your bank account yet.

  3. I always used to save half of any raise, promotion or bonus. As CFO, I got to help with the decision and even cut the checks, but I never did anything until I had it in my bank account.

  4. One of my jobs is a personal property appraiser. (Everything but cars and houses!) I can’t tell you how many times I emphasize that the appraised value is the RETAIL value, “like and kind.” (I.e., what I believe you would pay to obtain a similar item)
    The client listens and agrees… then is ‘surprised’ when a dealer offers them half (or less) of the appraised value. I know the dealer is factoring in their costs when they do this — but the client doesn’t always understand that.

    * * * * * *
    We try hard to not spend bonuses and raises. Other than a 10% tithe on them to God, the rest generally go into savings. If the bonus is big (as in more than $2,000), we may spend a little of it on a meal out. And if it’s REALLY big (as in more than $10,000), we may use 5-10% extra on a vacation.
    The exception to all this would have been the inheritance we received after Husband’s mom died. We paid off the house, bought a few years of service (so he can retire earlier on a pension), replaced an aging vehicle, put a large chunk into IRAs, took a vacation to Mexico (and it was a frugal one, believe me), and helped with Daughter’s college costs. We also took friends out to eat twice at higher-level restaurants, and helped a few who needed it. (Not very much $$, but some.)
    And we gave God 10%. As Christians, we do that upfront — and have never regretted it, even in the tightest of times.

  5. I like the message here – we all dream about money heading our way, real or imagined. My wife and I once had a garage sale to raise money to have an extra family vacation. Not a wise way to think about it as we had no way to know how much we’d actually earn. We got our hopes up on the extra trip only on the potential of money that we’d earn. We ended up short to fund our trip……the good news is that we busted our hump to save the rest.

  6. Congrats on your raise! I tried to ask for one at my consulting job, and failed. But I did get options… which is pretty cool for a consultant to have.

    I’m gonna save like mad in 2015 and slay my annoying mortgage. 4 is too much!

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