For years, I tried to stretch my money to its maximum potential. Moving money across different online savings accounts for better rates, taking money out of my checking account as soon as it’s there, paying bills on the last possible day to get more interest,…, the list goes on. Basically, whatever you can think of to earn a few extra dollars or two of interests, chances are good that I’m doing it. My motto was simple – a dollar is better than no dollar.
It was fun at the beginning, but as the number of accounts and bills I needed to keep track of began to pile up, managing the cash flows became a mini part-time job. At times, it was even a little stressful because inter-bank transfers take time, and you don’t want to miss a payment because you mistakenly transferred too much out of the checking account.
Many of you know about my recommendation of investing in low-cost index funds. Again, I’m not in the camp that believes stock picking isn’t a better investment. It’s just that when I weigh the burden of the part time investment analyst job that comes with active investing, it’s not worth the time.
Along the same lines of thinking, I will stop being a cash flow specialist. In order to do so, I will:
- Keep money in the checking account as a cushion for monthly and credit card bills.
- Setup automatic bill pay, so no bills will ever be late. In cases where automatic payment is not possible, I will pay the bill as soon as it arrives.
- Potential lost of interest is expected to be less than $50, which is well worth the lack of stress.
No more messing around with moving money in and out of different accounts to earn more interest. No more stressful days as I impatiently check for transfers to go through. No more reminders about when bills are due. Yeah, there’s some loss of interest, but the lack of stress will more than make up for it.
Sometimes, the choice that leads to more money isn’t the correct one. And this applies to saving money too. Here’s what Miranda, one of our writers, had to say about how hoarding isn’t ideal, or even necessary.
As personal finance writers, we get carried away with the idea that everything needs to be saved, saved, saved. All the time. But personal finance isn’t just about building up emergency funds and maxing out retirement plan contributions. It should really be about learning to maximize enjoyment with money. Thinking that you will be able to amass huge amounts of wealth and then just retire and do whatever you want is nice. But what happens if you are 50 or 60 or whatever, and no longer in prime condition to enjoy the fruits of your years of labor?
Another issue is that of breaking the habits of decades. Many people find that, when they retire, they don’t really enjoy their money because they are still in saving mode, pinching all of their pennies. They are no longer obsessed with saving up for retirement. Now they spend their retirement hoarding money, scared that the money will run out before they die. While this is a legitimate concern, and while financial discipline and saving are very important – vital even – it’s also good to learn how to spend on occasion so that you can get some enjoyment out of life. (You might also learn that spending money also helps you live a sustainable frugal life.)
Money as a Means to an End
I like to think of money as a means to an end. I don’t care about amassing great piles of it. I do know that I need money to pay for life’s necessities and some of life’s pleasures. While you don’t need money to have a good time, the occasional treat for yourself is nice, whether you are buying something you like (my husband’s style) or buying experience (my style).
Neither of us cares about leaving a fat inheritance for our son. We’ve got a 529 for him, but he’s going to help pay for his college, and he’s certainly going to be mostly responsible for his future prosperity. Instead, we want to be able to enjoy a few things now and live in reasonable comfort during retirement (which will probably be semi-retirement, since we’d go crazy in a full retirement situation). Our retirement accounts and investments are aimed at creating income streams later, and we have a decent emergency fund. Could we be putting more in retirement accounts? Probably. But what good is having all that money later if we never actually use it?
Having a Plan for Spending
This doesn’t mean that we just willy-nilly spend money we don’t have. We still have to be responsible. Otherwise, we’ll end up in vast amounts of debt, making interest payments directly into others’ pockets, instead of using the money for us. Before we spend money on things we think are enjoyable, we do a few things:
- Pay tithes to our church and make charitable contributions.
- Set money aside for emergency savings and investing (including retirement accounts and the 529). This is automated.
- Pay our bills.
- Fund our long-term goals (finishing the yard, buying new furniture, going on vacation eventually, etc.).
We know approximately how much we need to set aside for the future, and we have a pretty good idea of what it costs to do the things we enjoy, like providing music lessons for our son, going out to eat once a week, seeing a concert or show, buying a fish aquarium, and traveling a little bit. It’s all about taking stock of your financial situation, and figuring out what money you have for spending on things that you may not need, but that you might enjoy. We live fairly modestly now, and we plan to live fairly modestly in the future, so we don’t really need to reach a large number of accrued assets in order to maintain our current quality of life. So there’s no reason to hoard just to hoard, once we make the appropriate provisions for the future.
It’s true that money can’t buy happiness. But if you plan so that you can spend some of that money now, it can provide a little pleasure.
What do you think? Have you been spending too much effort squeezing every penny out? How do you feel about that?
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.
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I would have to agree with the fact that we should save up for the future. However, we shouldn’t sacrafice everything and stress ourselves out more than needed. We need to be responsible and cover our expenses and also enjoy our lives a bit. Thanks for the article.
Balance is always key. You want a good future but the present is equally important. Balance both and you win!
I love the idea of giving tithes to your church and then to other charitable organizations. It frees you up to live unselfishly and the tax benefits are really nice. I also feel more invested in our church and have a deeper bond with the people.
There are just so many benefits to being generous. Thanks for sharing some of them with us!
You are welcome! Thanks for your sound advice!
Great points. Making financial sacrifices in your earlier years is important, however at the same time you also have to enjoy your life and live in the present.
Save some, spend some, invest some, and you get to enjoy some! 🙂
It would make sense for the government to take away all financial assets an individual has hoarded when dying.
Too many of us fall prey to the hype that we are living so much longer today and that 70 is the new 40. Fact: We are not living longer-just more of us are living to a normal life span. The average life expectancy is misleading. Remember if on person lives to 70 and another dies at birth, the median is 35. However, if both live to 70 then the median is now 70. Noone lived longer just one died early. The insurance industry data shows “the great die off” of males that occurs between 75 and 77. Very few of us make 80 and of those that do, few are mentally or physically sound. You may be the lucky one, but don’t bet on an inside straight. Our government penalizes us for saving and rewards us for not having anything. Don’t believe this is so-if you go into a nursing home and have assets they take them before they will help you, but if you have nothing they start at the git go. Have fun and enjoy it and get the same benefits as those who did nothing.
I completely agree with you on this. Retirements should be about spending the money you’ve worked hard to save, but still in a financially responsible way.
I believe in this philosophy to a point. I think you would need 2 things to live such a full balanced life.
1.) Milestones. After you get past a certain milestone, you money usage can change, and if for whatever reason, you go back below the milestone, then again, your money usage should change back to the earlier state.
Example). If you are in any kind of debt other than affordible mortgage debt, you primary goal should be to pay off the debt. Don’t go on fancy vacation or by fancy car by going into further debt.
2.) Budgeting, with an emphasis on spending. If you create a budget with spending in mind, you allocate yourself a certain amount to spend per month and year. Try to achieve that spending goal, but not go over. This technique would help those that are in constant savings mode (which I have seen happen too).
Example.) If you are debt free, then peg a certain amount for spending on vacations and do it.
Live is short enjoy it while you can, but in a financially responsible way.
The money you have is a direct measure of the difference between how much you have given to the world and how much you have taken from the world. The larger the sum you have the more you have given. If you spend, you take it back. In my opinion, it is, therefore, a quite generous to have given more than one has taken, even over a lifetime. If you end up with a ton of money or more than you need, you can start an endowment. For example, I heard a story from a friend of mine, about an autoworker, sadly I forget his name, who spent little and worked hard all his life. With all his money he started an education fund which each year would send an underprivileged kid to a specific college and each year he would then attend the graduation ceremony of the student he sponsored. He could do that because he worked hard and spent little and avoided the famous balance. Who decides what balance is anyway? I think what he did was admirable.
Enlightening. This article did change my perspective on money. I am kind of a spendthrift person – perhaps overboard, but now that I enjoy a fat paycheck, I think it wouldn’t be a mortal sin to spend something that I enjoy. Not just the “little pleasures” but things that are indeed pleasurable. Maybe balance is key.
Life should be enjoyed. Absolutely. No need for people to hoard money only for the sake of amassing it to see the dollar total increase. Well, maybe for some folks that’s what does it for them, and hey – if so, its their choice. For me, and I believe most, money isn’t in and of itself the goal.
Life is a balance, in my opinion. Health, Wealth, Relationships. I talk about this all the time, and its the foundation on which I operate. All 3 are important, and all are interrelated.
All this said, it IS important to save money. Obviously. Each of us will need money for old age, medical emergencies, and the like. What’s key, in my opinion, is to learn to live within your means and distinguish between wants and needs. Its the needs that take priority, and many wants are not really necessary. Now, life is to enjoy so we should try to go for those wants because hey, why limit ourselves in life? If you want something, GO FOR IT. But be smart and rational about it. Spend on what’s necessary first, save for expenses that WILL come up and be necessary in the future. Enjoy yourself with rewards and treats along the way, without sacrificing what’s truly important. If you have the big stuff taken care of….then spend. Or maybe even give some resources to some folks that really do need help. Selfishly, you can feel great knowing that you made a difference for others in need.
So very true. Some people spend all their lives saving and end up never getting to spend their money or truly enjoy it because they’re still stuck in money-saving mode. And I agree with Sandra, children should know the true meaning of hard work so I wouldn’t leave them a huge inheritance but definitely a decent amount to help them out with certain things like an education or maybe even their wedding..
Extremes are never good. If you leave too much inheritance to your children, it will make them lazy and complacent. They should make their own money right?
I just made a comment saying what you just said (much more eloquently than me.) We scrimp and save so that we can have money to spend on experiences and yes, even things. If you work hard and save hard, I think then of course spend it reasonably on yourself, family, and friends.
Great article. It is reassuring to have your savings and retirement funds set, but at what cost will you pay to have it? I totally agree…enjoy your life today and plan for your future. You can have both. 🙂
Having a plan is key. Without it, you are probably going about the whole retirement thing blind. It’s important to live today AND saving, and like Eric said, it’s a balancing act.
I agree 100%. Live for today while planning for tomorrow. Too often people get too consumed with counting every penny but end up missing out on living life, or they feel that tomorrow isn’t guaranteed so they live life “to the fullest” without planning for the future ending up with nothing. Like anything in life, it’s all about balance and perspective.
It’s the life-cycle of money. S/he who dies with the most, LOSES.
A good reminder to spend and live for the moment, while having a massive war chest in savings just in case 🙂
Live in the moment + a massive war chest is….. a utopia. 🙂
For most of us, maybe a moderate war chest with responsible living is more easily achievable and if you think about it, is actually more than enough.