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How Should I Spend Discretionary Income?


"One of the areas that I’ve seen very little research in the personal finance space is not for the “living paycheck to paycheck” situation, but more for someone in my boat…I’m able to spend as needed, but still very eager to save as much as possible in my prime wage earning years.
My main issue is that I love to travel freely and spend on discretionary stuff like a surfboard exercise system I see on YouTube.
All of this clearly impacts my savings capability, but since I know I won’t be kicked out of my apartment or have any dependents, it’s hard for me to understand the impact.  I then go through weeks where I will tell myself “don’t spend a dime!” I’m curious to hear your thoughts for this mid-career earner doing pretty well."

What a well thought out question, and thank you for valuing my opinion.  The type of person you describe below is what I refer to as the Mock Saver in my soon to be released book.  Here is a quick excerpt “The Mock Saver–those that don’t think about what they buy because frankly they think they can afford not to think about it.  In other words, they are able to save money because they still make more than they spend.  They feel like they make enough money that they don’t need to think about what they purchase.”  Contrast this with someone that is a saver “people that think about most (if not all) purchases before they make them.  Unless they need the item or REALLY want it, they will forego the purchase because they know the impact every purchase can make on their ability to save.”

The difference between these two is not that the saver sacrifices their needs or happiness, they just think long and hard before making a purchase.  The bigger the purchase the longer they make sure they need or really want it.  Why does the saver do this?  Because they completely understand that by not spending money today, their money can continue to be invested and allowed to “hopefully” grow over time.  I was recently interviewed for an article about the importance of contributing to 401k’s for 20 something year old’s.  The pertinent example I used was that at a reasonable growth rate of 7.2% money would be expected to double every 10 years (rule of 72).  In 40 years when the 20 something will be sixty something their money will not be 4 times the amount but 16 times the amount (amazing thing about compounding).  $1000 will be worth $16,000.  Buying the exercise surfboard for $550 could be a exercise surfboard today or $8800 40 years from now using the same math as above.

Instead of looking at it in terms of future dollars though, look at it in terms of an earlier retirement, look at it in terms of extra travels in retirement, look at it as assisting current or future children with their education, look at it as less stress during bad times.  Look at it from a perspective of your future self.  That is who you are benefiting.  In your examples, your travels bring you a great deal of enjoyment and happiness.  Not seeing friends or family to save a buck would probably be a sacrifice and one that you fortunately don’t need to make.  It is probably well worth it to you to spend on this sort of expense.

Now let’s use your example of the exercise surfboard.  What a great example!  You can clearly afford it without impacting you too much today.  You might not even notice the numbers leave your bank account.  The issue is your future self and your future goals.  If you truly feel this will bring you tremendous joy, then do it.  Maybe you miss surfing, and this reminds you of your surfing days.  Maybe you’ve been waiting for exercise equipment such as this your whole life and now you have it.  If this is the case, then perhaps you should make this particular purchase.  My experience suggests more than likely this is what will occur.  If you buy this (or already bought it) you will use it a lot for MAYBE 6 months and then you will get bored with it and it will most likely collect dust, take up space, need to be moved, and then sold for a small fraction of what you paid for it IF you could find a buyer.  My assumption is that this is the latest exercise fad, you are buying into the fad, and it will go the way of the Nordic Trac.

This may have been more than you were looking for.  The bottom line is don’t give in to impulse buys and recognize when you are contemplating one—give it some serious thought before doing it because your other long term goals are probably much more important to you.