How do we juggle the desire to save for the future, with the need to live life to the fullest today?
Is 6 months backpacking around Europe in your 20’s more valuable than being able to buy a beach house in your 50’s? Is pushing hard on the mortgage today the wisest course, or would you be better off easing up a bit and spending a little more on the family holidays?
Many of the clients we’ve been working with over the last several months are members of the Aussie Firebug community following my chat with Matt on his podcast. Perhaps you even discovered this podcast through that interview. I’ve found that for some people with a strong desire to achieve financial independence, it can become a real weight on their shoulders, invoking guilt whenever they consider prioritising enjoying life today over accumulating wealth.
Most of the people we work with are in their 30s and beyond, but this week I had a young couple in their mid 20s. They were very financially sharp, having already purchased a home. It helped that the husband was a tradie so he was earning good money and had been doing so for about five years by now. They had great visibility on their spending and were contemplating investment strategy options. They advised that starting a family was on the agenda in two to five years and so we spoke about other life goals. One member of the couple was keen to get some travelling before they started a family, his partner was agreeable though it wasn’t a strong desire of hers. Within the goals that they had flagged prior to coming into our meeting, retirement was something they had ticked. We had a good discussion around the fact that whilst we could prepare retirement projections for them, the reality is that given traditional retirement at least is so far into the future, I would question how much value such projections would really be. A small inaccuracy in assumption today will have a massive impact when you project forward 35 plus years. Instead I pointed to the fact that relative to their age they were already ahead of most, and had done a fantastic job in setting themselves up financially. Given the discipline they’ve shown to date, perhaps it was appropriate to spend a little money now to create some great memories through travel that will live with them forever. Who knows what the future brings, but delaying the payoffs of all your hard work until you are in your 50s and 60s is I think a waste of the potential fun and energy that you can throw into life whilst in your 20s, particularly before starting a family. I doubt that they expected to be told to spend some money when they scheduled a financial planning appointment. And I could see it was challenging for them both, financial discipline, perhaps frugality, had been something they’d lived with for so long. Finding the right balancing is not easy.
This balancing act is not just a challenge for those in their 20’s. One I’ve been wrestling with in recent months is the car purchase. Our current cars are 10 and 11 years old and starting to look and feel a bit long in the tooth. I’d like to replace one and keep one of the older vehicles as our second car. The first mental challenge for me has been overcoming the logic that there’s no reason why we couldn’t continue using the existing cars for another decade. But having defeated that internal fun slayer there is then the question of how much to spend on the replacement vehicle. Having reached middle age, with our oldest child moved out and our youngest at the tail end of secondary school, we’re fortunately well past the “doing it tough with a young family” years. Is now the time to live a little on the car front? If not now when? There’s the classic old saying that rent money is dead money but at least rent money puts a roof over your head. Car money is more like setting fire to your savings. The value of the car drops significantly over time, plus you’ve got the running, insurance, maintenance and registration costs. In no way can spending significant money on a car be considered financially smart. But what about happiness? What about fun? Is it okay to use our money for that purpose too? We’ve all heard the saying that there’s no prize for being the richest person in the cemetery. As someone with no desire to retire early, can I now somehow justify to myself spending money on something purely for the happiness that I hope it will provide, even recognising that this happiness will probably be fleeting, and with the knowledge that on a spreadsheet the decision makes no sense at all?
That balancing act – it’s tough.
I certainly don’t have all the answers. In fact I’m quite sure there is no one right answer. It’s a balance everyone must decide for themselves and the right mix is unique for us all. But here’s a couple of factors you may want to contemplate while you’re weighing up these sorts of decisions.
Kids
If you decide to start a family, you’ve got your kids around you for about 20 years. Through that period change is rapid. Certainly in the first five and largely the first ten years, your kids are highly dependent on you and activities like trekking in the Himalayas is not likely to be a realistic option.
But then roll forward a few years when your kids are in their mid teens and perhaps they are fitter and more energetic than you are. Opportunities for travel, camping, and active hobbies like skiing, hiking, sailing, or trail bike riding, could all be within reach.
Then before you know it they’ve got their own lives and you’re booking a time in their calendar to catch up for dinner.
The point here is there are windows of opportunity through this phase of life that are pretty brief. If you’ve dreamed of taking your kids to Disneyland, there’s probably realistically only about a four or five year period where that’s going to be a resounding success as a trip. Assuming you take one significant family holiday a year, that means there’s not too many opportunities you can afford to let slip by.
When considering how you get the balance right between long term financial security, and happiness and fun today, have at front of mind the limited time frame you have to enjoy your children and create memories that will linger for decades to come.
Health
We are all living longer and longer. Today any financial planning we do would forecast living well into your 90s. But we all know that that’s not the result everyone gets to enjoy. A head down bum up approach in your 20s on the basis that you will then be able to retire in your 50s and really enjoy life falls apart if somewhere in middle age you have a health issue that restricts what you can do, or worse you don’t make it to middle age at all.
If you’ve got a dream of hiking in the Andes or bar crawling around the Mediterranean coast, consider whether these are goals you can tick off in your early adult years. Because if you miss that window, perhaps those items won’t come up on the menu again.
Valuing the intangibles
How do we value things that make us happy? Most research tells us that experiences produce more long-term happiness then spending our money on physical items, so that gives us a bit of a clue. But it’s merely a pointer and doesn’t assist in any definitive decision making.
It seems to me there simply is no way to value these intangibles. Perhaps recognition that they exist and they’re important is the best we can hope for. I think this is particularly relevant if you’re in a relationship and you’re discussing such matters with your partner. I’ve certainly been guilty in the past of being the fun police, a roll I don’t enjoy playing. Perhaps your partner wants to spend money on something that you find wasteful or illogical. A recognition that different things make all of us happy, and that there is real and significant value in that happiness, might help you see things from your partner’s perspective and realise that whilst for you the enjoyment generated by spending this money doesn’t align with the cost, for your partner the equation does indeed add up positively.
I hope you’ve enjoyed this contemplation. There is no right answer on the balancing act, but taking some time to reflect might help in the choices that we all need to make.
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