A Father-Daughter Duo Answers Your Questions: Should We Use Our Money to See the World Now, Or Save for the Future?
Dear Meghan and her Dad,
My husband and I live well within our means in a very expensive city. We save what we can in his 401(k) and my Roth IRA. We have some accessible savings in our credit union, however we are not really saving much. We have prioritized world travel as our luxury. We are able to do this in an affordable way, considering the luxury, by often attaching our adventures to his work trips or relying on the kindness of friends who live or own abroad. The cost of the trips pale in comparison to the cost of things like raising a child (or two), or owning things! Would you say it’s worth investing in our lives right now when a couple of thousand dollars allows us to see the world, or put all that money away (somewhere!) to help out a little in the future? To add, we will hopefully make more money in the future. Thanks!
– Living in the Now vs the Future
So here’s something neat (Dad, don’t look): I have no idea what a 401(k) or a Roth IRA are. Feel free to respond, LITNvsF, to explain both. I know they are marks of fiscal responsibility. I should definitely have one (both?). Here, I’ll lob a question back at you: As someone who only recently acquired the ability to save bucks, what is the best way of going about that? Feel free to respond in kind.
In the meantime: look at you, letter writer. You not only KNOW what these things are, you HAVE them. That puts you in the good books. That puts you so far above me that I am sure my dad cringed when reading this. And since you have revealed yourselves to be child-free but expecting that to change, let’s assume we’re roughly in the same age/life bracket. So go ahead: give yourself a huge pat on the back. Pat away. Do you know how rare true financial smarts are? At our age? In a very expensive city, nonetheless? You should relax, I think. You should go ahead and pour yourself and your husband some sangria, and toast to your good choices. I’m really, really proud of you.
Now put that drink down and call a financial planner. Stop drinking, I’m serious. As I remind myself every time I sit down to write, I could always do better. So could you. That’s evidenced by the fact that you wrote this letter. You’re at a life juncture where these questions have become more pressing, and you need to honor and embrace that. I would find someone—even just a friend with more experience—with whom to sketch out what you want the next 5, 10, 50 years to look like. There are SO MANY QUESTIONS you won’t be able to answer, but you can, at the very least, begin to think in a less nebulous way about the life you want to build. Let’s say you realize you’re going to want to start your family in 3 years. How much money will you need to have ready to feel comfortable with that decision? Then, like, half that, because I don’t want you to really panic. But make a few spreadsheets and earmark a few goals and maybe, just maybe, take one less trip this year, and put that chunk somewhere—yes, somewhere! A money market? That’s another thing I’ve heard about. Try one of those, and let me know how it goes.
Okay, calm down again. This is a balancing act. I am not by any means recommending you give up the luxuries you have very intelligently built into your life. Because who knows what might happen. You might skip that trip to Papua New Guinea in favor of putting those funds towards a mortgage and then five years from now we’re all living in ice castles and trading beaver skins for fire sticks. Point being: We can’t foresee every eventuality. You are living what sounds like a beautiful, fulfilling, adventurous life. You should not feel guilty for that. But you should do whatever is in your power to prevent those moments being tainted by your fear of what is to come. You should do what you can to ward off that fear. You deserve it.
Meghan’s dad says:
This is a good question—the kind of a question that a sensible and responsible young person should ask. It is a financial question. It is the type of question that gives those of us in the older generation hope that there is a future for the world, full of sensible and responsible people who ask these sorts of important questions.
So it may come as a bit of a shock to hear that my answer is “spend the money now!”
This is the sort of issue you and your husband should discuss on an ongoing basis because your circumstances will change, and when they do, you need to re-consider this advice. That said, as of today, you are able to make that $2,000 go a lot farther than it will in the future. As parents of one or two or more children, you won’t be able to couch-surf your way across Europe. With increasingly more stressful and time consuming jobs and lives, it will be more difficult to grab a cheap last-minute ticket to Madrid and spend a week exploring the Prado (the museum, not Prada, the bag company), eating tapas and watching odd processions of Catholics in often funny outfits packing large and heavy religious artifacts while walking down the street (nothing like a good Inquisition to tweak your religious fervor). In addition, you will find, as you age, that a good bed becomes a more important component of travel plans, and good beds don’t come cheap; cousin Emma’s friend Sophie’s lumpy couch in Paris just doesn’t cut it. Your travel costs are heading north.
The only real risk with this strategy is that your careers don’t pan out the way you currently expect them to, and as a result you don’t have the resources that you currently think you will have. Doesn’t matter. Trust me—if things are dire in 2024, the $2000 you spent in 2014 to fly to Peru (which, if invested at current interest rates might have grown to $2100) will not be enough to make a meaningful difference in your lives. On the other hand, the memories of the views from Machu Picchu just might.
Questions and money market advice welcome at firstname.lastname@example.org.