We are used to interpreting the world through polar opposites.
Savers perceive those who are reckless with money to be wasteful. Spenders believe those who are frugal with money miss out on precious opportunities.
Who is making the right choice? Which group will not regret their decisions years down the line?
Let’s be honest – it depends on you. You don’t really care what other people do with their life (or their money) – you want to make the best choice for you. The one that will save you from regrets and the one that will provide a strong moral conviction so that you can consistently follow through on your financial goals (or lack thereof).
Some argue that saving and living doesn’t have to be a dichotomy. But is it so? And will it ever be possible for you to integrate them as two equal aspects of yourself?
Let’s examine this.
The case for saving money
The focus of savers rests in both the near future and the distant future. There are two main incentives for saving money: to secure your retirement and to lead a debt-free life. Both are hard to contest.
Saving for retirement
You have to think about the future. If you don’t start saving as early as possible (your 20’s), you expose your future self (your 60’s) to the risk of being dependent on the government. Unfortunately, sometimes the money that you will get through Social Security benefits is almost half of the wage you got while you worked. The prospect is even worse for those who will retire single or with debts.
There is no excuse not to take responsibility for your future. We live in a society that values instant gratification and this makes long-term planning a difficult task, especially for those who are in their 20’s and early 30’s. But we need to overcome this, as we get older by the day.
Life expectancy and saving for retirement
Yes, it is true, some of us won’t live long enough to actually use the money accumulated in the retirement account. Does the fact that you can be hit by a bus tomorrow justify splurging everything you have?
Hate to be the cynic here, but just as you can lose your life before retiring, you can also outlive your savings (particularly if they are thin, to begin with). Life expectancy is improving and you may well find yourself struggling to make ends meet as opposed to finding peace in your golden years. All the while, your body not only can’t work as it used to, but it also requires more care than ever before (which is sometimes expensive, too).
None of us can afford to ignore the issue of retirement age finances.
Saving to overcome debt
We talk a lot about the pillars of financial freedom. We offer our perspective along with actionable advice that can help you develop your personal finances. Financial security starts by building an emergency fund for unexpected expenses; big-ticket purchases are managed through sinking funds; savings accounts, retirement accounts, and investment portfolios serve to increase your wealth.
The end goal is getting rid of debt.
If you don’t have an emergency fund, you will go into credit card debt during your next crisis. If you don’t save for big purchases you will have to get a loan, and if you don’t have stashed wealth, you’ll live paycheck to paycheck. The stress of debt repayment will burden your life and those of you who aren’t particularly good with money will carry this weight well into old age.
No one looks forward to carrying unnecessary debt or having a sub-par retirement. However, the means to achieve financial freedom may differ (more on this below).
But first, let’s see what obstacles stand in the way of saving.
The case for living life to the fullest
Life is fragile and all your possessions can be lost in a matter of minutes. Ask those who have been suddenly diagnosed with a terminal illness, those who’ve lost a close friend or a family member, or those who’ve gone through a divorce: what kind of regrets do they have once they are forced to face the end? We can bet that none of them would want some extra cash in their bank account. Rather, they regret missed opportunities, lack of life experience, and, of course, the memories they failed to make.
Is the notion of any sort of security (let alone financial security) just a man-made concept that was introduced so we feel like we have control over life events?
Life is happening now
Every sacrifice you make toward leading a frugal lifestyle that will allow you to save can cost you (in life experience) in the long run. Social pressure and the limitations that come with each stage of life don’t make it easier, either.
Fear of missing out will tempt you
If you prioritize saving, your peers will do the total opposite to what you do – at any age. When high school friends enroll in college (regardless of the debt accrued through student loans), you will be looking for a way to pay in cash for your studies. People around you will drive expensive cars on lease, while you’ve paid in cash for a beat-up, but reliable vehicle. When couples organize lavish weddings and move into big houses, you will throw a budget wedding and live in a compact home. This list can go on, but you get the point.
The fear of missing out is a well-documented social anxiety that stems from comparing your experience with that of others. And we are immersed into a culture of marketing (and social media) that exploits our needs for social proof. If you are wondering whether to save money or live life to the fullest, the fear of missing out can tempt you to simply go with the flow and forget about financial consequences.
This is not good, especially if you do it because of others. But sometimes, you simply have to live in the present.
The various stages of life will limit your options
There are periods when certain life goals can be achieved. While the traditional approach to life stages may be controversial, risk-taking is still handled better while you are still young.
For example, if you aspire to be a musician or an athlete – it’s better to spend some money to try these career paths and fail at them in your 20’s, than having a hefty 401(k) plan, but never having pursued your real passion. This also applies to working a well-paid job that doesn’t bring you joy, as opposed to doing something you actually enjoy. It’s easier to switch careers before you settle down, as it only disrupts financial goals in a stage of life where you have little to lose, to begin with.
The same goes for traveling. You can do it at any stage in life, but if your saving goals allow you to go on your dream vacation only when you’re retired and you can no longer enjoy surfing – is it still worth it?
So, let’s delve into the part that matters the most – budgeting.
The conflict between the saver and the spender in you comes to life when you create a budget. Of course, budget discussions can extend beyond the purpose of this text, and also, they depend on life circumstances. While we don’t intend to tell you how to spend your money, we can discuss common budgeting mistakes.
Budgeting to save: Mistakes
Budgeting starts with tracking expenses. The step after that is to eliminate unnecessary costs. But what is a necessary expense, and where do you draw the line when it comes to cutting costs in order to save?
It’s recommended not to save on health, well-being, and unique memories. These are all general guidelines, so let’s get into the specifics. What are unnecessary costs?
For instance, letting go of unused gym membership is one of the first tips you’ll get on cutting costs in personal finance. The money is wasted only if you don’t go to the gym and you pay for it. If you do use the gym, you shouldn’t cut your gym costs from the budget just for the sake of saving. Our bodies slowly begin to deteriorate after we turn 27, so treat your body like the temple it is. This means not cutting any sort of cost that’s good for your health, not only gym membership.
Another example is the way you trim the costs of food in your budget. Cuts on eating out will curb your spending – but we are social creatures, so don’t go after each meal away from home. You have to consider the real, long-term, non-financial cost that you’ll pay for saving money by eliminating spending on social events. If you are single, you’ll miss out on an opportunity to find a partner (or a friend). If you are an entrepreneur, some business deals are simply best done over lunch – pop culture will attest to this (remember that episode of the Office). In-person networking events can change your career path, and a simple birthday party will make your kids happy (if you have them).
You’ll have to use your discernment when you cut costs from your budget in order to save money. The examples above can be expanded on many budget categories, including technology, travel, clothes, cars, or other. Some budgetary cuts will make you sad, especially when you realize that you skipped out on creating new memories, like a weekend getaway with your loved one.
Budgeting to spend: Mistakes
You can make mistakes when you allocate money for spending, too. Spontaneity is great, but excessive spending will quickly deplete your savings. This will not only make financial goals, like saving for retirement, more difficult to achieve, but it will also plunge you into debt as soon as you need cash that exceeds your paycheck.
Splurging on possessions vs experiencing life
The most typical over-spending mistake is to throw your hard-earned-dollar on overpriced possessions or items with socially contrived value (like the latest branded clothing), that actually mean nothing to you.
For example, do you really need a fancy wedding with an x amount of guests? Do you need the most expensive sofa in the furniture shop for your living room? Do you need a flashy car?
Social pressures are at play here, and you may find yourself splurging on possession or events just to keep up with your peers. Needless to say, this is a very bad reason to go broke. The one (and potentially only) exception to this rule is: owning your home. It is for the best to own your property, regardless of the shifts in value, because otherwise, you are spending on rent – a cost that should be avoided if possible.
On the other hand, spending on experiences is likely to improve your life in the long run. Remember, money is by far not the only form of capital, so make the most of every opportunity that comes your way. Those who consider experience as the most important currency in their life are more likely to embrace the possibility of doing something new. Whether this is international travel, learning a new skill, or a personal dream – they go for it. And if the experience involves others in your life, it will give you both something intangible, yet more valuable than personal wealth.
Even experiences that went wrong can also be valuable – if you learn a lesson after you’ve gone through them.
Let’s talk extremes
You might think that most people can’t stop themselves from spending, which doesn’t allow them to save (either not saving enough, or not saving at all). While this is true, there is also a portion of the population, and you will probably immediately think of someone you know, that has an issue with saving too much (and spending too little).
Obviously, both under-spenders and over-spenders need to reevaluate their relationship with money. If these issues aren’t resolved, the damage can go beyond the realm of personal finances and wreak havoc in other aspects of life. In fact, our relationship with money can be “unhealthy” in so many ways, that the literature on financial therapy couldn’t stop at under-spenders (or savers) and over-spenders (or spenders) to describe all those personality types. Instead, it had to introduce nine separate money disorders:
- compulsive buying disorder
- gambling disorder
- hoarding disorder
- financial denial
- financial enabling
- financial dependence
- financial enmeshment, and
- financial infidelity
Over-saving will not make you happy. Yes, it’s responsible to save for your future, but it’s equally important to live your life in the meantime, while it’s happening. If you can’t shake off your overspending or under-spending habits, consider seeking professional help. It can be either a financial adviser or a psychotherapist – the choice is yours. The money you spend on help will not be thrown to the wind if it solves a big issue in your life.
The dilemma of whether to prioritize saving or spending is real. This is a deeply personal decision, and, to be honest, no one else can hand you a solution that will really work for you. You have to be prepared to do some soul searching – it’s the only way to balance enjoying the moment with planning for the future.
We are unique as a species in that we have a long track record of taking calculated risks to discover new domains (take rock climbing as an example). So, you can take the moderate approach: be technical about the end goal, and deliberate about making the most of each moment along the way.
The bottom line on overspending
It’s funny, but blowing all your money will only bring you debt. And there is no faster way to become a wage slave than being forced to settle debts. You will live in the moment, but somewhere down the line, you won’t be able to experience freedom because you’ll owe your time or possessions to someone else.
The bottom line on under-spending
At the same time, you can live life to the fullest instead of saving every dollar. You can acknowledge life for what it is – an experience. Sharing it with others is priceless. For some it’s almost a spiritual truth, for others, it’s simply the essence of being human. Bank statements or reports on the performance of your investments will never grant you this.
Deep down, you have to be convinced that your budgeting choices are correct – otherwise, you won’t be successful in reaching your financial goals. And you’ll not be enjoying it once you finally accomplish them.