Spending Now VS Saving for Retirement
By Matt - Monday, September 24th, 2007
This is one of the quintessential questions of personal finance in my opinion. We are taught from a fairly young age that we need to save for our retirement. Retirement, that magical day when we turn 65 years old and we can all of a sudden stop working and begin enjoying life. The reality is that by the time you turn 65 you can’t do all of the things that you would like to do because of physical limitations – your window of opportunity has either become so small or simply vanished on living your dreams out.
So the quandary remains – do we put our extra money into our retirement funds or do we live our dreams now? Well lets look at a the two extremes:
Spending Now
When it comes to spending now I’m not referring to spending your money on essentials like food and housing; I’m referring to extra money that would normally go into retirement savings. If you were to take that money and buy yourself a fishing boat because you’ve always wanted one and learn to be a great fisherman (which might be a dream of yours). If you get the opportunity to adjust your life so that you’re able to live your dreams sooner rather than later then that’s an amazing thing.
For this to be really worthwhile you need to understand what your dreams are and know how to live them within your means. So for example if you’re able to take 6 months to sail in the Caribbean and have the money to do it then you’re probably ok for spending the money now. If on the other hand you don’t have the money then you’re living your dream at the expense of reality then the credit card bills will catch up and you’ll be in debt with little to show for it.
Saving for Retirement
The other extreme of the argument is you save money all the time and put it away for retirement. Again I’m not referring to being extremely crazy and saving everything just your average amount (maybe a bit more) for retirement. The unfortunate thing about this aspect is you have to wait till your 65 before you can start spending that money and living your dreams. Attached with that is fact that you might not be as spry at 65 than say at 35. But saving for retirement means that you’ll be able to take a few trips here and there have no financial worries and live a nice happy life.
Personally the idea of retirement scares me because I would become bored, I’m always moving around doing things and yes at 65 many of them are still possible but at 75 and 85 most of them aren’t. Buying a new car every year versus a new one every 5 or 6 wouldn’t be a defining point nor a high point of retirement for me. If it is a dream for you to be able to do that then you want to save for retirement.
The optimal solution – Balance
The optimal solution is a little from column A and a little from column B. You can’t ignore retiment because you’ll need to have money for when you’re no longer working full time and on the other hand you don’t want to ignore your dreams and not spend now. The balance is making sure that you live both lives. You spend some money now on living your life but set aside enough money so that when retirement does come you don’t have to worry about not having any money.
Finding what the balance actually is will be a personal choice, for some people their dreams are very physical and they want to accomplish a lot of them before they hit their 40s lets say and for others they might actually be dreams that can start when you’re a little older.
Unfortunately the very first part of this equation is knowing what your dreams are and what your goals are. Until you have those figured out spending now is simply spending without purpose.
This entry is filed under Budgeting and Planning, Financial Situation.
7 Responses to “Spending Now VS Saving for Retirement”
1 January says:
September 24th, 2007
at 11:25 am
Recently, I’ve been tracking my savngs goal for the year. Based on my annual salary, I set a goal of $10,000 and eigth months down to year end, I have $1,537 to go. All of a sudden, i found myself thinking of how I could save another $6,000 by christmas. I had to take a deep breath and really thought about the main reason I was setting aside money for the future was simply to live the kind of life I plannd for myself which involves a lot of International Travel, Charity, Adoption, Photography. I had to tell myself that i’ve tried for the year and immediately began to plan towards my next vacation outside the country. I agree that at a point in time, you have to learn to live life.
2 Joe says:
September 25th, 2007
at 7:50 am
That comment hits close to home Matt, as my fiancee is in the process of starting her own business as well as beginning to re-enter the art scene. Combined with the wedding coming up next year, we have some expenses coming and here with significant numbers. On top of that, we’re trying to pay down our CCs and continue investing.
By budgeting carefully, we have been able to pull it off. If we were flying by the seat of our pants, I’m sure we would have crashed by now. However, with the budget we are able to balance ‘fun’ with ‘compulsive wealth building’ sometimes even combining them
3 Kyle @ Rather-Be-Shopping says:
September 25th, 2007
at 1:12 pm
Great post! That balance you are talking about is a tough thing for me to determine at times. I think that is where setting aside a pre-determined amount of money every month towards retirement is so important. Determine the amount that still allows you to enjoy some of your small dreams while at the same time saving towards the big dream of a peaceful retirement.
4 BuildandSucceed says:
September 25th, 2007
at 4:02 pm
Interesting. I see it a little different, I guess. I think I enjoy saving lots of money every month but my reasons for putting money away aren’t just for when I’m 65… I want to save for a business, a house, etc… You know, all those OTHER things not just peaceful boring retirement. Plus, I’m still young.
But yeah, I just try to set aside a small amount of “fun” money. And I just make the rest automatic through my banks bill payments, transfers, etc.
Great site by the way.
5 Steve says:
September 25th, 2007
at 11:10 pm
Nice discussion Matt- I think your looking at the right issues. I’ve worked with many of them myself. I remember being 28 and having this discussion with a planner. I wanted a used fishing boat… he said something to the effect that “You’re not supposed to do that now! You’ve got to save for retirement!” I understood what he said rationally, but at the same time there are priceless opportunities in our lives that only we can really understand. A few years later I did get a used fishing boat. We enjoyed it for several years and have family memories I wouldn’t trade for twice its cost. The same balance and contrast has been played out repeatedly over the years. Saving and investing is still a priority, but I won’t sacrifice the “wants” that make life worth living along the way.
6 The Friday Gathering For 9/28/2007 | Gather Little By Little says:
September 28th, 2007
at 11:54 am
[...] One Million And Beyond discusses spending now vs. saving for retirement and finds the real answer is balance. [...]
7 BuildandSucceed says:
September 29th, 2007
at 3:23 pm
@Steve
That’s a really good point… It’s hard!
Sometimes I see things like that… and then sometimes I don’t.
It’s sort of like buying an expensive car that you really want. It’ll make you really happy when you’re driving and people see you or whatever. But when you pay the bill for it, you have a regretful feeling.
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