The Perils of Retroactive Living

By Kevin Gibbons

Retroactive living can be frustrating if not downright dangerous! No, I’m not talking about your favorite historical re-enactment, or even wanting to wear Victorian clothing all the time.

Retroactive living is falling into the trap of continuously paying for last month’s (or last year’s) experience long after it happened. It is the typical way most people use their credit cards. We’ve all done it. You go out to a nice dinner and have a great time. Then, one month later, the charges show up on your credit card statement, and you barely remember the meal as you sigh and make your card payment. Or you go on vacation and find yourself paying off the bill for that experience for the next six months.

“But that’s how credit cards are supposed to work, aren’t they?”

Well, that’s how they can work, but let’s take a look at what is happening when you use them that way.

You’re continuously paying for experiences that happened in the past; often, long after the enjoyment of that experience has waned. You have decoupled the pleasure of the experience from the pain of the payment. When you have a good meal at a nice restaurant, you often conclude the evening by thinking “That was well worth the price!” The meal has to be remarkably outstanding to feel that way one month later when you see the charges. At that point, you are just paying a nameless charge, maybe thinking that you really have to start eating out less often.

Or, maybe you take a vacation every summer. You put it on your credit card and then pay it off over the next 10 months, using your tax refund to make a balloon payment in May, just in time to start incurring charges for this year’s vacation. You enjoyed the experience in the past and are paying for it in the present (and future).

This can be a very fatiguing situation. You can feel like you are always climbing uphill, that every time you try to enjoy life, you end up digging a deeper hole that you have to climb out of. Again, you’ve disassociated the pleasure of the experience from the pain of paying for it.

There is a way out of this trap!

A few years back, we did quite a few speaking engagements for one particular financial advisor so he heard our presentation and concepts multiple times.

Every year, he and his family would go to Disney World in Florida. Even though he was very well off and had MORE THAN ENOUGH money for the trip, he was in the habit of putting it on his credit card and then paying it off when he returned home.

After hearing us talk about paying for vacations in advance over the course of those speaking engagements, he decided to give our advice a try.  He paid for as much of his next vacation in advance as possible.

When we saw him again after returning from his trip, he thanked us profusely.  He said that it was the best vacation they ever had.  Even though he was always able to pay for the trip in full when he returned home, there was something about having almost all of it paid in advance that made it that much more relaxing and enjoyable.

But what if you don’t have all that money lying around to prepay that expense? You may not have the money “lying around,” but you do have it! Remember, you are planning on paying that credit card off at some point, aren’t you? Instead of paying the expense off after the experience (with interest), set the money aside before the experience. It’s the same money! You’re just “spending” it at a different time.

Now, this sounds simple but there are a couple of challenges and changes in attitude you need to address to make this work. First, you and your family have to exercise some patience. You may have to skip the trip to Disney World one year and look for some low-cost entertainment alternatives closer to home in order to build up that advance reserve. Don’t decide to do nothing. Everyone needs a break and a chance to recharge. Just find low- or no-cost options for one year so you have the funds for the following year.

Second, commit to setting aside that money. If you were paying off a credit card, you would regularly make your monthly payment to get the balance paid off. You need that same level of commitment to setting aside the funds for this future activity, whether it for a vacation, a new clothing item, a dinner out or a home improvement. Make the commitment and understand that it has to be as firm and rigid as making an obligated credit card repayment. If you start skipping contributions or “raiding” the fund, you will never reach your goal and you will get discouraged.

Turn the dread and frustration from retroactively paying for your previous experiences into anticipation for enjoying upcoming activities. As your dedicated fund grows, make more detailed plans for how you’re going to enjoy the experience. Again, whether it is a vacation trip, purchasing a desired item or remodeling your house, saving the money in advance has many upsides. You know how much you can spend (it’s what you have saved for), you can enjoy the activity with a clear conscience and no stress because you know there are no looming bills in your future and that sense of anticipation is a much more positive emotion than the stress of paying after the fact.

So, take the time to make a plan, start setting the money aside (remember, this is not extra money. It is money you would have dedicated to paying off the credit card after the fact anyway) and enjoy the experience. Your “future self” will be grateful!


Kevin Gibbons is a Cash Flow Planning Expert, the Vice President of The Savvy Life and co-author of the international bestseller Living The Savvy Life. For the past eight years, Kevin and Savvy Life Founder Melissa Tosetti have worked with over 545 individuals and families to create Spending Plans.

They also work with financial advisors and their clients doing cash flow planning as well as giving Savvy Living presentations via webinar and in-person to audiences across the U.S.

To learn more about how Kevin and Melissa work with clients, visit The Savvy Life’s Programs Page.

If you’d like to learn more about how they work with financial advisors and their clients visit: The Savvy Life Advisor’s Page