Written by: Corey Janoff
The robotic financial advisor in me wants everybody to always make optimal financial choices. Paying down debt instead of going on vacation. Putting more money away for retirement instead of joining a golf club. Making spaghetti at home instead of going out to dinner at a steakhouse. You get the idea. On the other hand, the human in me understands that we are emotional creatures and it isn’t realistic to always make the optimal financial decision. Sometimes dumb financial moves are OK.
Life is About Stories
I would love for everyone to have a FIRE mentality, crush their debt faster than required, and be on track to achieve financial independence as soon as possible. If that is you and you are happy doing it, then more power to you. The key is being happy.
If you are saving 50% of your income for retirement and on track to retire by the age of 50, that is fantastic. However, if you walk into your retirement party at age 50 and don’t have any stories to share, because all you did during your career was work and put money towards your financial goals, what’s the point?
Be sure to create some memories along the way. Maybe you have really fond memories as a kid of riding in a convertible with your dad to the ice cream shop in the summer. As a result, you decide to go out and buy a convertible as a weekend car that you can drive to go get ice cream with your son or daughter. Maybe your dad is still living and you are fortunate enough to get all three generations out for a spin from time to time. Buying the extra car probably isn’t the smartest financial move, but the memories will last a lifetime. How much is that worth?
Let me give you another example. I’m a big fan of stand-up comedy. I recently bought tickets to see John Oliver when he comes to town in December. I’m sure many of you are fans of his TV show on HBO, but if you ever get a chance to see him do stand-up, it’s worth it.
When I got online to buy tickets during the pre-sale, I had the option to buy the “cheap” seats in the balcony for $65, or seats in the orchestra for $100. Keep in mind, this is a stand-up comedy show with one person and a microphone. As long as you can hear, it doesn’t matter where you sit. 90% of the jokes are auditory only. The remaining 10% might be enhanced if you can see the comedian’s facial expressions or body language. Is it really worth it to spend over 50% more for an additional 10% benefit?
The nerdy financial planner in me would say no, it’s not worth it. Since there isn’t a strong visual component to the show, buy the cheap seats and put the remaining money in the kids’ college accounts. On the other hand, there is something about being up close at a show or concert that makes the memories that much better.
I clicked the “best available” option and the seats I ended up getting are in row B, which is the second row available to the public. There are a few rows in front of row A that I think you need to know someone to get access to, so we're not really in the 2nd row. Regardless, we’re going to be pretty darn close and I’m excited.
Was it the optimal financial decision? Absolutely not. The truly financially optimal choice would be to stay at home and wait until the TV special for this tour comes out and watch it for free using the password for my parents HBO account.
But is the additional money spent worth it in the pursuit of happiness? Absolutely. My wife and I will get a much-needed date night and hopefully see a show that we will remember for a long time. If I want to get scientific on you, laughter is one of the best drugs you can find on the planet. It relieves stress, boosts your mood, relaxes muscles, enhances your immune system, releases endorphins, helps with congestion, diminishes anger, enhances relationships, among other things (I did my senior project in high school on laughter).
In my mind, the money is well spent, even though it does not accelerate me towards any of my financial goals. I only go to several of these shows a year, so it’s not exactly breaking the bank. If I bought premium tickets every week to a show, concert, or sporting event, that would have serious long-term consequences on my finances.
Balance is Key
While it is important to have fun and create memories and stories in life, we can’t completely neglect our long-term financial goals. Doing so will only create additional stress of not being able to maintain that lifestyle.
Also, the novelty of an activity or event will wear off the more frequently you do it. Hawaii is a great vacation destination. But if you fly to and from Hawaii every month, you are going to get really sick of traveling to Hawaii. I’ve talked to some people who retire and the first thing they do is book a bunch of vacations now that they have all this free time. The trips are great, but after a year of jet setting all over the world, they get worn out from all the travel and just want to relax at home!
Be sure to find a balance. If you are on track to achieve your important financial goals within an acceptable timeframe (you define acceptable), then go nuts with any extra money you have. If you want to use it for fun, then go for it! If you prefer to put some of your extra money towards those financial goals so you can achieve them sooner, that is great too!
If you aren’t on track to achieving your financial goals, then you really should think about those choices of things you want now vs. financial goals. Again, living for today is important, but if it comes at the detriment to your long-term financial well-being, your future self isn’t going to be pleased with you.
It’s challenging to have everything you want in the timeframe that you want it. Try separating your goals into “must have” and “nice to have” buckets and prioritize them within those buckets. For example, something on the "must have" list is a home with four walls and a roof. Preferably with electricity and indoor plumbing, too. The "nice to have" list might include a guest bedroom, home office, fenced backyard, and some furniture that wasn't purchased at a consignment store.
Let’s make sure we are on track to achieving the “must haves” in a timeframe we are OK with. If we can also get on track to accomplish some of the goals in the “nice to have” bucket, then we are doing great.
Once you are on track with the “must haves” you can make an executive decision with any excess money. If you think spending money on something enjoyable today would be better than putting that money towards one of the “nice to have” goals, then do it. You have the important stuff already covered.
Remember, make smart financial decision with the things that matter. But don’t forget to make some dumb financial moves every once in a while, to maintain your sanity.