The motto of the personal finance set is to pay yourself first (pay it into savings). Frugality is lauded and spending is condemned. I don’t disagree, but am probably a good standard deviation from the norm (for personal finance bloggers). Compared to many of the other bloggers, I actually spend quite a bit of money.
I just returned from a vacation to Vegas, and two months ago I was vacationing in St. John. My first night in Vegas, I gambled myself to a $200 loss. That night I stewed in bed thinking how frivolous it was for me to be in Vegas, and how much all of this was going to cost me. The next day a few more friends flew in, and we did more gambling, had a nice dinner, went out to the clubs, and had a great night. Even though I spent and lost much more than $200 that night, and felt much less guilty. Why? Ultimately, I realized it was OK for me to treat myself. I wasn’t incurring credit card debt, and do pay myself first – nearly 45% of my annual gross salary goes into savings.
Could I save more? No question. I could downsize my apartment a tad, eat out a bit a less, and go on fewer vacations. However, do I need to or should I? Probably not. Spending money in itself is not wrong. The purpose of accumulating money is to ultimately spend it. The only reason to save money is so we can spend it another day. Saving is a means to an end. But how do we know when we can treat ourselves? Is it based on how much money we make? How much we already have? Or how old we are? Most decidedly, a combination of all three.
I think the first step is always to look at what we already have to our name. We should never spend so much that it’s going to decrease our net worth more than one percentage point. So if your net worth is zero or negative then you shouldn’t really be treating yourself. As a general rule, I think if you’re putting 30% of your gross pay into savings, you’re doing OK. You probably can spend the rest and still be fine. As for age, I believe this is where I’m probably going to be more unconventional. I say spend more when you’re both young, and old.
It’s true you’re only young once. I don’t think you need to go into debt to fund a lifestyle that you can’t afford, nor should anyone live a life that they don’t want. However, having been just through my twenties, I have no regrets spending where I did. Yes, I have less in my bank had I forgone the New Year’s Trips to Barcelona, Miami, etc. with my friends, but those are the type of trips you can only make when you and your friends are young and mostly unattached. When you’re old, I say spend, and donate enough that hopefully you don’t leave very much to your children or grandchildren. I preach this not only because I personally don’t want a dime from my parents, but because I firmly believe that inherited wealth is in general, a disservice to future generations.
I’m not trying to promote spending itself, but rather spending within a context that can be guilt free. We save so we don’t have to deal with the stress and guilt of spending too much. Spend where and when you can without the guilt. I know for instance I have always valued vacations, new experiences, nice meals, and nights out with friends. On the other hand I don’t place too much value of nice clothes, cars, or most other physical stuff. I wouldn’t be able to afford lots of new nice clothes and nice vacations. Most people have to choose the things that are truly important to us, and for everyone it’s a different mix.
I wouldn’t mind have nice new threads, but I know that by buying new clothes would entail cutting back on something else I value more. Actively choosing where we spend our money is the first step towards having a financial plan, and having a plan leads to everything else.
Note: This post is guest written by Dong of Askdong.com, a blog about personal economy. Dong is a 30something who lives and works in Boston.
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