During the pandemic, we learned that Americans can save a lot more money if we want to. Take a look at the historical American personal saving rate chart according to the U.S. Bureau of Economic Analysis and the St. Louis Fed.

After lockdowns began on March 18, 2020, the U.S. personal saving rate skyrocketed from a respectable 9.3% pre-pandemic to an impressive 33.8% in April 2020! Americans suddenly decided that saving money during a time of great uncertainty was a priority. So that is what we did.

As the initial six-month shock of the pandemic began to wear off, Americans decided to lower our saving rate to 13.3% in November 2020. Then, when news of a new strain of COVID emerged in the beginning of 2021, Americans decided to increase our saving rate again, reaching 26.3% in April 2021.

Since April 2021, the personal saving rate has steadily declined thanks to vaccines, experience, and the desire for most of us to get on with our lives.

Today, the U.S. personal saving rate is around 3.1%, which is a low not seen since January 2008.

Recently, I was told by a producer of a certain podcast that I was being overly frugal. This comment came after an interview covering my upcoming book, Buy This, Not That was done.

I had thanked her over e-mail, pointed out a spelling error in my name in the show notes, and also asked her to tell the host I had finally gotten a headset for potential future interviews. Here’s what she wrote:

“Re mic: I totally get the frugality mindset but treat yourself to a Shure MV7 or ATR2020 and write it off against tax. You’re a fab interviewee who deserves a better mic.”

Been Battling Frugality For A While

At first, I was slightly taken aback by the comment because I’ve been trying hard for the past couple of years to get out of the frugality mindset. I’ve admitted I suffered from frugality disease. So to be reminded that I may still be battling this affliction stung.

This year, at age 45, I’ve finally entered the decumulation phase of my life and have purposefully been spending more on things I care about, e.g. food, children’s education, and nicer travel accommodations. It’s been hard to spend more than usual, but I’m making progress. Heck, just the other day I ordered toro sushi instead of the usual salmon sushi!

Furthermore, I already have an external microphone for doing podcast interviews which I purchased a couple of months ago. It had been working great over multiple interviews until this podcast session. When we connected, the host said he heard an echo whenever he spoke. Therefore, he wanted me to put on a headset.

Unfortunately, I didn’t have a headset that could plug into my laptop because I didn’t have an adapter. I ended up not using my external microphone and doing the interview with my Apple earbuds plugged into my iPhone. As a result, the sound quality wasn’t as good as it could have been.

I don’t think I was being overly frugal. I’m just a newbie at doing podcast interviews and didn’t have the ideal setup. I’m also technically challenged. Or, maybe I am actually cheap and just don’t realize it!

Practicing Stealth Wealth is the act of keeping your overall wealth a secret. It helps with keeping haters at bay and your family safe. For your well-being, it’s much better to blend in with the majority than stick out when it comes to your finances.

When it comes to money, people have all sorts of ideas. Think about this situation. The security detail for Elon Musk’s seven children must be extraordinary.

Given Elon has a ~$300 billion net worth, his family may be constantly at risk. Luckily, Elon could easily pay a ransom in the tens or hundreds of millions of dollars, which ironically makes his family even more of a target.

Not sticking too far out of the crowd is wise. However, is it equally wise to be stealthy with your donations? To appease his haters, he could announce a $10 billion donation to helping eliminate poverty where he lives. If so, how can you still hate someone after giving that much?

Even so, let’s discuss why we should still probably keep our donations a secret.

As a lifelong saver, it has been hard for me to spend more money and live it up. It didn’t matter whether I got a raise or made a profitable investment, the extra money would almost always get reinvested. The Boot is a concept I came up with to help us spend money more freely.

The fear of being trapped in a job I disliked was far greater than the fear of missing out on nice things or experiences. Therefore, it was only rational for me to keep on saving and investing to one day be free. But I’ve discovered that even after extricating myself from Corporate America in 2012, it’s still hard to ball out.

In some ways, the pressure to generate enough passive income is greater today because my wife and I are parents. Since we don’t have day jobs, we don’t receive any company-sponsored healthcare or retirement benefits either. When little ones are depending on you to survive, you can’t lose too much focus.

But consumption smoothing is also important for a better life. There’s no point making money if you’re never going to spend it. If we end up dying with too much money, we will have ultimately wasted time and energy. Instead of grinding away for hours at work or on our business, we could have spent that time on something more enjoyable.

Example Of Using The Boot To Spend More Money

The Boot equals any investment return above its long-term historical average. The larger your Boot, the more you can spend money freely and kick butt.

For example, let’s say your $1 million stock portfolio returned 18% one year. Given the long-term historical average in the S&P 500 is about 10%, your Boot is 8%, or $80,000. If you’ve been itching to spend more money, you now have the option to spend up to $80,000 before taxes on whatever your heart desires.

I struggled for two years to buy myself a new laptop. Even though I probably type more than 99% of people in the world due to Financial Samurai, I refused to replace my six-year-old laptop. Four keys were half broken and sticky, which meant I had to retype words over and over again. In addition, the battery no longer held its charge and the monitor would occasionally flicker out.

The Boot concept helped me realize I could spend $1,500 before tax on a new MacBook Pro 13″ due to my portfolio’s outperformance in 2020. But of course, I first researched how much it cost to change the battery ($250) and keyboard ($150) at my local repair shop. And of course, I waited for a sale before finally pulling the trigger. Hooray!

The Boot is also my capital source for revenge spending. After saving even more aggressively during the pandemic, I promised myself I would open up the wallet wider. However, I’m having a difficult time spending even 1/100th of my Boot. Let me explain.

The Problem With The Boot

Although my stock portfolio outperformed the S&P 500 in 2020 due to tech, my stock portfolio is severely lagging the S&P 500 in 2021 because big tech and growth stocks are sucking wind.

Hence, I have this worry that if I don’t make changes to my portfolio, I will end up losing a lot of my Boot. And if I lose my Boot, then I will regret spending money that I never locked in. Therefore, I end up not spending or not spending nearly as much as possible.

This type of thinking is not uncommon for super-savers and investors. The “what if” mentality is always lingering. However, it is because of this paranoia that many of us have been able to build much greater wealth than the average person.

Therefore, if you are unable to fully embrace The Boot concept, let me share a modified version: The Boot Plus.

“The Boot Plus” For The Super Frugal

In 2020, the S&P 500 returned about 18% after dividends. Therefore, the 8% Boot above the historical average is nothing special in my example above. Everybody who only invested in the S&P 500 returned 18%. Further, people who use the S&P 500 as a net worth growth benchmark also likely grew their net worths by 18% or more. Therefore, let’s calculate The Boot Plus.

The Boot Plus is equal to your portfolio’s performance minus the S&P 500’s performance if the S&P 500 outperforms the historical average. The point of the Boot Plus is to reward extra outperformance. If you’re just outperforming like everybody else, you do not deserve a trophy! You must outperform the outperformer.

For example, if your $1 million portfolio returned 18% in 2020, your Boot Plus is $0 because 18% is what the S&P 500 returned. You don’t have any extra money to spend beyond your normal spending habits.

However, if your portfolio returned 40% in 2020, your Boot Plus is equal to 40% – 18% (S&P 500 return) = 22%. You’ve made $220,000 more than what the median S&P 500 investor made, who already made $80,000 more than the historical average.

Even if your portfolio is sucking wind the next year, your 22% outperformance of the S&P 500 that year and 30% outperformance of the S&P 500’s historical performance should be enough to let you spend more money than usual.

More Scenarios Of The Boot And The Boot Plus

For clarification, here are more scenarios using a $1 million investment portfolio and the S&P 500, which has historically returned 10%. If your Boot is $0, then your Boot Plus is also $0.

• The S&P 500 returns 12%, your portfolio returns 15%. Your Boot = $50,000 (15% – 10%). Your Boot Plus = $30,000 (15% – 12%). These are good times, therefore, you should spend more freely.

• The S&P 500 returns 8%, your portfolio returns 9%. Your Boot = $0 because the S&P 500 and your portfolio underperformed the historical average return of the S&P 500. Although times are still good, rewarding underperformance is not the way of the Financial Samurai.

• The S&P 500 returns 4%, your portfolio returns 20%. Your Boot = $0 because the S&P 500 underperformed its historical average. There is a growing uncertainty in the economy. Your Boot Plus = $0 even though you crushed it because you’re preparing for future opportunities. Although, with such outperformance, you should feel free to spend at least 10% of your portfolio’s return over the historical average (20% – 10% = 10% or $100,000/10).

• The S&P 500 returns -15%, your portfolio returns 6%. Your Boot = $0 even though you significantly outperformed. During corrections or bear markets, it’s best not to spend more than your usual if the economy is fraught with uncertainty. In general, you should rather take advantage of downturns and invest more money.
  

Finally, I do think it’s generally best to spend more money with your cash flow than selling your investments to spend money. The larger you can grow your investment pie, the better.

You’ll Likely Never Spend Your Entire Boot

The Boot isn’t an all-or-nothing concept. The goal is to spend more money during good times and when you outperform. After all, you can’t get rich if you don’t outperform the average. You certainly don’t have to spend your entire Boot. If you have a sizable portfolio, it may be impossible to spend that much more money.

For example, let’s say you had a $5 million portfolio that went up 40%. Using the same percentages for 2020, your Boot Plus is a significant $1.1 million ($2 million – $900K). If you’re used to spending only $300,000 a year for a family of four, suddenly spending almost 4X your budget will be extremely difficult.

However, at the very least, your investment gains should enable you to freely buy almost anything you want. And if what you what is relatively inexpensive compared to your Boot, then consider yourself lucky!

Personally, I always like starting small and working my way up towards more spending. For example, I like taking my Boot Plus and dividing it by 100. I look around and see what I can buy with 1% of my Boot Plus. Then, I take my Boot Plus and divide it by 10 to see what I can buy. I continue on until my desires are satiated.

More times than not, you may receive another Boot Plus before you spend your previous Boot Plus. As a result, you will end up building even more wealth while you enjoy your life further.

If you always tether spending to investment performance, you will forever be a disciplined spender. As a result, you will also likely never get into financial trouble either. Here’s to spending our fortune responsibly!

Related posts on spending:

How Much Savings You Should Accumulate By Age

The 10X Investment Consumption Rule To Fix Bad Spending

Readers, what do you think of The Boot and The Boot Plus method for spending money more freely? Do you have any smart spending rules that tie into investment or wealth gains? How do you overcome the guilt of spending more money?

For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. Everything is written based off firsthand experience. 

If there is one time to have money and spend money, it’s during a pandemic. Money should help make difficult times more bearable. If you can’t afford to spend extra money during a pandemic, then you can always revenge spend once the pandemic is over.

Revenge spending is a way to make up for tougher times since the lockdowns began in early 2020. Further, revenge spending may help you feel better about politicians locking you and your business down while they still get paid with benefits.

However, perhaps not everybody should revenge spend. Let’s go through some criteria that should probably be met before splurging. Perhaps meeting at least three of the criteria before revenge spending is the responsible thing to do.

Reasons To Revenge Spend

• Didn’t leave your house to do anything fun for more than six months

• Didn’t visit friends or relatives for more than six months

• Held onto your investments through the worst of the crisis

• Added more to your investments during the worst of the crisis

• Juggled work and parental duties full-time for more than 10 months

• Held onto your job for the duration of the pandemic

• Kept maxing out your 401(k) and saving 20%+ of your after-tax income

• Started a new project or side hustle that is making money

• Finally launched your own website that cannot be shut down by the government during a pandemic

• Improved relationships with your immediate family members

• Worked as a frontline worker during the entire pandemic

• Showed empathy and kindness to others with your time and money

• Didn’t catch COVID or give anyone COVID

• You have a multi-bagger investment gain

• You smartly took advantage of record-low mortgage rates and refinanced.

Reasons Not To Revenge Spend

• Got COVID-19 and spread the virus to others

• Refused to wear a mask and respect other people in public places

• Didn’t take up any hobbies or start any side hustles

• Stopped working on your website or side hustle during the pandemic

• Decided to quit your job instead of negotiate a severance when negotiating a severance has never been easier

• Made no improvements in any areas of your life

• Gained more than 5% of your body weight

Personally, I’d rather revenge spend after making more money or doing something good. This way, spending money feels more rewarding.

However, for those of you who are pissed off that your personal liberties were taken away for so long, revenge spending is one way to make yourself feel better as well.

Why You Should Revenge Spend More Money

The pandemic reminded us about three things:

1) Tomorrow is not guaranteed. We better make the most out of each day for today could be our last. The YOLO Economy is going to be amazing as people live it up more.

2) To make money, it’s better to be an asset-owner than a laborer. With risk assets surging to all-time highs and service economy jobs still way down, there has never been a more clear reason to be an investor.

3) Consumption smoothing is difficult. For the investment-minded individual (that’s you), during times of uncertainty, you tend to hoard money and not spend. You then tend to keep aggressively saving long after the worst has passed.

During good times, you then tell yourself to save for the impending bad times, which is still fresh in your memory. The cycle repeats until you are left with more money than you need. This is great if you are following the Legacy retirement philosophy. However, there comes a point where you are saving way too much.

Of course, if you are struggling to make ends meet, please do not revenge spend. But for those of you who’ve been able to maintain or grow your net worth during the pandemic, a session of revenge spending is encouraged. Otherwise, there really is no point working so hard and saving so much.

Hoarding Massive Wealth Is Stupid

Imagine being worth $100 million. Would you bother continuing to work at a job you hate? Heck no! Yet, I know guys who do just that because they want to be billionaires. They think they won’t be happy until they achieve such a milestone. Nuts!

Because of their inability to consumption smooth, upon death, they will likely have to pay at least $40 million in estate taxes to the federal government.

Sure, they could set up a GRAT and other things to try and reduce their estate’s tax liability. However, at their net worth trajectory, paying a lot of estate taxes is an inevitability.

It would be much better if they spent the money or gave it away while they lived. The same goes for all of us.

Spend To Conquer A Scarcity Mindset

Revenge spending is an exercise to help break the scarcity mindset. One of the reasons why we save during bad times and good times is because we consistently fear bad times will come again.

I have been diligently saving 50% – 75% of my after-tax income since 2000 because I saw so many people get let go during the 2000 dotcom collapse. Then came the 9/11 terrorist attack. Then the 2008-2009 financial crisis really knocked us out for several years. And now, of course, it’s the global pandemic.

Shoot. I don’t even have a job and I’m still worried about a job loss!

As a father, my mind is always wondering: What else bad is going to happen next?!

Unexpected bad things can and will happen. As a result, I bet there will be a whole new generation of money hoarders for years to come.

The longer you live, the more good things will happen to you. Unfortunately, the longer you live, the more bad things will happen to you too. We tend to remember the bad events more than the good events.

Don’t let the global pandemic permanently lower your standard of living for the rest of your life. Course correct through revenge spending.

If we can’t spend money during bad times to make our lives better and we can’t spend money once the bad times are over, then when can we ever spend money?

Revenge spending helps break the scarcity mindset cycle.

Determining How Much To Revenge Spend

Let’s say you’re used to being frugal for years. Instead of going on a multi-year-long revenge spending binge where you often find yourself passed out in a luxury suite in Vegas, start small and revenge spend your way up.

Starting small can include revenge spending for just a week or only during holiday sales. Starting small can also include revenge spending on lower-ticket items first. I suggest you do both.

The idea is to slowly cure your frugality disease or money guilt by changing your habits one little step at a time.

I’ve suggested a good spending ratio of 2:1. In other words, spend $2 on something beneficial, like an investment for every $1 you spend on a splurge.

Responsible Methods To Revenge Spend

Another way to revenge spend is to follow my 10X Investment Consumption Rule. The rule states that if you want the latest $1,000 iPhone, then you best make at least a $10,000 return on an investment to pay for that unnecessary item.

However, the 10X Investment Consumption rule is also born out of a scarcity mindset. It often takes a very long time to earn 10X more than the cost of an item you want to buy.

Perhaps the most responsible way to revenge spend is to take 10% of your annual investment returns and blow it on whatever you want. This way, you’ve still got 90% of your investments hopefully working for you. You’re also not paying a lot of taxes and you’re rebalancing your portfolio.

If you tether consumption to investment returns you will never go broke. You will also likely eradicate any money guilt you have for spending money.