How to Spend Money You Don’t Have

March 5, 2011

If you’ve ever bought a car or a house then you’ve probably spent money that you didn’t have.  Or if you have a credit card you might have paid for something without having the funds to back it up.

A hundred years ago, or even several decades ago, it was pretty difficult to buy something if you didn’t have the money. However, access to credit in today’s economy makes it relatively easy to spend money that you don’t have.

Should You Borrow Money?

We were faced with this decision yesterday when invited to go on a trip with some good friends of ours.  We really wanted to go but we recently visited California for my wife’s birthday so our travel funds were depleted.  Not to mention that I just mailed in the biggest check I’ve ever written in my life to paydown and recast our mortgage.

Even though we didn’t have the money on hand to pay for all the travel, we knew we’d eventually have it.  We could have paid for everything on credit and paid it off later but we make it a habit to pay our credit card bill in full each month so that wasn’t something we were willing to do.  Still, we really wanted to go on the trip so having to tell them that we didn’t have the money was tough.

Of course everyone’s decision making process will be different based on your financial situation but there is one thing that’s true for everyone trying to decide if they should borrow money or not, you should make the decision with care or you might end up regretting it.

Steps to Spending Money You Don’t Have

Here are some high level steps to take if you find yourself looking to spend money you don’t have.

1) Estimate the cost of what you need/want.
2) Figure out how much you can afford to spend.
3) Determine how much money you’re short.

Once you know how much more cash you need you can consider ways to get that amount without borrowing it.
4) Look for places you can “find money”.
5) Estimate how quickly you can get the money.

Now you have a feel for what you need and how long it would take to come up with that money.  If you cant wait that long or can’t figure out ways to “find money” (like earning extra money or re-prioritizing areas of your budget) one potential step is borrowing money. 

How you choose to borrow the money can have a big impact on the premium you’ll pay for spending money you don’t have.

6) Determine who you’ll borrow from.
7) Calculate the cost of borrowing the money.

You can get quick and easy access to credit if you have a credit card in your wallet, however, you’ll pay pretty high interest rates until you pay the money back.  One option is to apply for a loan with your local bank or through an online bank where rates can sometimes be cheaper. 

You’ll have to weigh your different options for borrowing the money.  For example, you’ll have to apply and go through a funding process if you choose to borrow from a peer to peer lending site like Prosper or Lending Club.  In contrast, you can get a pay day loan right away but the cost will be a much higher interest rate.


At the end of these steps you’ll know approximately how much money you need, where you can borrow it from, and what it will cost you. Then you’ll have enough information to decide whether or not it’s worth it to spend money you don’t have.  I hope these tips can help you make that decision.


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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7 Responses to How to Spend Money You Don’t Have

  • Barb Friedberg

    You are right on track with you money habits. I’d focus on the great trip you took to CA and not worry about the one you missed. you made the right decision.

  • The Fire Finder

    Nice article. The best part of this article for me is the planning involved. I think that looking at every angle before you borrow will save you from making mistakes and losing more money than you have to.

  • Wallace

    Here’s a tip: Just say no to discretionary debt.

    Whether you could afford it in the future or not, taking on debt to finance discretionary spending is simply a bad habit to get into and a slippery financial slope.

    When you mention cars and housing, you are only partly right. Transportation and housing represent non-discretionay spending — you need some place to live and in our culture you need a way to get aorund.

    And debt for car loans and mortgages are more like financing expenses. A debt take on for something that is entirely consumed is not prudent.

    To see what’s happening in black and white, merely run both types of transaction through your net worth statement.

    Of course, you need to be smart when buying either a car or a house and the loan can work for or against you.

    Skip the trip, avoid the debt!

    • Ben

      @Wallace, I didn’t mean to limit it to discretionary spending. I think you should go through the same steps whether it’s discretionary or not.

      I agree housing isn’t discretionary but you don’t have to borrow money to buy a house, you could rent. Of course, everyone’s situation is different – which is why I suggested the steps to help people think through the decision.


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