Thursday, August 04, 2005

Rule #7: The Now or Later Rule

Many people will tell you that before you spend a dollar, you should think about the future value of that dollar if you invest it. The thinking is that if you save money now, it will grow via investments, and then someday you'll have more money to do the things you want to do, and presumably, more time to do them when you're retired. This is not bad advice. I expect to live until I'm well into my 90s based on my family history, and I want to have resources to enjoy that part of my life.
But on the other hand, you can't save everything for a rainy day. Sometimes I ask myself this question:

  • If I don't buy/do this now, will I still be able to enjoy what I'm buying/doing later?
It depends on what I'm spending the money on. Here are some examples:

Having a big house: postpone it, I can enjoy that when I'm retired
Elegant furniture: postpone it until I'm old and need to spend a lot of time sitting down or in bed
A car: postpone it, I'll have more of a need for it later, at least until I start to really lose my faculties, or get osteoporosis and turn into one of those little old ladies who can’t see over the steering wheel.
Travel: hmm, I might not enjoy mountain hikes and swimming with wild dolphins when I'm arthritic and decrepit. Better do it now.
Sailing: again, I might not be physically able to do it later, so I should do it now.
Gym membership: there may be cheaper ways to stay fit but if I even want to make it to old age, I don't think I should skimp on exercising.
Education: sure, do it now because it's an investment in the future anyway and I might have Alzheimer's later.
Clothes: who knows, maybe when I'm 80 I'll be rocking Miu Miu instead of muu-muu, but I think it's a better bet to enjoy wearing nice clothes now while I'm still young and slender!

I certainly don't make all my decisions using the "a bus could run over me tomorrow" argument: I do think you should plan for the rainy day. But I also think you should make hay while the sun shines, or at least before your knees give out.

11 comments:

mmb said...

I love this post. That's a great way to balance long term needs with short term desires. The bit about the little old lady who can't look over the steering wheel made me laugh though. I am 5'2. I already can't see over the steering wheel. Can you imagine what will happen when I am 90?

sue said...

I think everyone values different things. I hate spending money on electronics, and prefer to spend it travelling. My fiancee loves computer equipment. I'm hoping I can change his mind.

Monty Loree said...

These questions make me crazy... I have a friend who has every toy imaginable.. seadoos, boat, RV etc, but he's deep in debt. His logic is.. I need to enjoy it now.

He's having fun, but he's worrying about his debt.

I've invested money into stuff when that money could have purchased a new bathroom reno for my wife for example. The investment should have worked but sometimes it didn't. I thought I was doing right, but ended not doing anything at all.

I know another fellow that retired and died a month and a half later.. He promised his wife a nice vacation for 40 years. They had planned a beautiful vacation for 3 months after he retired and he died of cancer before they went.
It's a tragic story.

That's why your question kills me... It's a very difficult question. Like yourself, I don't live by the "might get hit by a bus today logic" . I plan to live to late 90's as well. It's very difficult to balance between enjoying now and enjoying future.

I do know that the more senior people get the more content they are with things. They've seen alot and done alot. They don't have the energy to rock out and party all the time like younger people do.

Miguel said...

My philosophy is "balance". No doubt, there is a certain amount of sacrifice necessary to attain most meaningful goals, including financial goals. While I am all for enjoying today (too much so according to my dear wife), I find it helpful to break my goals down into relatively short-term pieces (even if they really relate to longer term objectives). That way, I can celebrate success ever now and then (which makes sacrifice a little easier).

And also, I find it's important to budget for fun - rewarding yourself is very important. We used to create these entirely unrealistic budgets that we would blow through every year, making us feel like financial failures. And eventually, we finally learned that you gotta be realistic, you have to budget the fun stuff too, and you have to allow a cushion for the unexpected. Plus, you have to be a bit flexible with the budget - if we save in one area, that means we can spend in another. Constantly pushing to save more can be very counter-productive, especially in a relationship were people might have differing priorities and spending habits.

Ankur said...

nice philosophy to stay balanced.

Flexo said...

This post has been added to the Carnival of Personal Finance #8!

nene said...

i love this deal

leslie said...

Don't assume you will be decrepit when you get older. Take care of yourself now and plan to continue into old age. I'm 62, 5'4", weight 118#. I do yoga, work out with a trainer in the gym twice a week and try to get in an hour of cardio every day. I do a two hour hike once a week with a group of women who are into fitness. They come and go, but there are three of us who are constant. If i can't get out to do my cardio, I jumprope to music. In addition, I'm a long time vegetarian. Another thing is that most people don't realize that as you get older, you must seriously curtail your eating. My motto is eat less and eat healthier. My diet is based on whole grains, beans, fruiit and vegetables. I have brocoli sprouts and blueberries every day. And dark chocolate! I drink only green ice tea and water. Does require some discipline, but if yu can be disciplined w/ your cash, you can be disciplined about diet and exercise too.

Nancy said...

Your rules rock! Great way to evaluate an expenditure. I've quoted you on my website (linked to this post) - not sure how to trackback, but I've set up pingbacks (I don't know my way around the blogging world very well yet!).

Credit Card Applications said...

Great way to evaluate your spending habits! Everyone should take this moderate approach to their money. If you save everything-- you'll have no fun! But if you have too much fun-- you might suffer for it later!

Play it safe-- but not too safe!

Rid of Debt said...

As a financial analyst, I have spoken to many people about their finances.

Now, I hear a LOT of older people say, "Life is so hard. I wish I had saved my money back then."

But I have never heard an older person/couple say, "Well... I'm broke and struggling right now, but I sho nuff had a great time back then. It was worth it!"

Generally speaking, He who laughs last laughs best. So I normally lean in that direction. But there are some exceptions. So this question (now or later) must be asked. Good post.