Your best friend invites you to her unexpected destination wedding. The $3,000 tropical trip is next month.
The country music crooner your moms group follows comes to town. Concert tickets are pricier this time because of the intimate venue.
We’re bombarded every day – thanks to social media – with opportunities to spend money. We see friends and family posting about their adventures. We want to feel that excitement; no one likes FOMO — the fear of missing out.
“It’s so easy to say, ‘The heck with it! I’ll pay for it later,’ ” says Adam Koos, a certified financial planner and president at Libertas Wealth Management Group, Inc. in Columbus, Ohio.
Yet impulse trips and purchases can derail your savings goals and future plans.
7 questions to keep you on track
Before you say yes to that next great adventure or purchase, take some time to think about your expenses and your financial plan. Ask yourself these questions and act accordingly:
1. When was the last time you and your significant other talked about finances?
If it’s been a while, schedule some uninterrupted time to go over your budget and financial goals. Take a status report. Compare your budget to your goals. Do they line up? If not, make adjustments.
2. Is your budget working?
If you don’t spend more than you earn but money is tight, where is the money going? Do you need three streaming services? Is there a less expensive mobile phone plan? A cheaper grocery store? Can you eat out less?
3. Do you have an emergency fund?
If not, work on saving for unexpected costs like household repairs or a job loss. If both spouses work, save 3 to 6 months' salary. If one partner works, save at least 6 months' salary. If you’re retired, save a year’s income or more.
4. How are you saving for retirement?
Some general rules: Put at least 15% of pre-tax income into retirement savings. Max out your workplace 401(k). If you’re under the age of 50 in 2019, you can contribute $19,000. If you’re over age 50, you can make catch-up contributions of $6,000. At a minimum, put away enough to get the employer match on your 401(k).
5. What protections do you have in place?
Even if one partner doesn’t work, both spouses need term life insurance, especially if you have children. If you or your partner dies, term life insurance replaces income, covers costs, and pays off debts. This provides stability for the surviving spouse and family. Estate planning and creating a will can preserve your wealth.
6. Do you have healthcare savings?
Many forget to factor healthcare costs into retirement planning. Health savings accounts are a great way to cover ever-growing medical bills. Expect to pay $300 to $500 a month for copays and supplemental insurance plans. A healthy retired couple should plan on annual out-of-pocket health expenses of about $9,000.
7. Are you willing to put off retirement (or other goals) for an unplanned experience?
Think about an opportunity from all angles. Is it a once-in-a-lifetime experience? Can you pay it off right away? How will the expense impact your budget and change other financial plans? Can you save and do it next year? Is there a workable alternative?
Be honest with yourself about money
When you put rules in place for household spending and retirement savings, you strengthen your financial backbone. When everyone at home knows the budget and understands what you’re working toward, it’s easier to say no to unplanned opportunities.
The key is to keep those goals front and center, says Bob Stolz, a financial advisor with the Kelley Financial Group, part of Northwestern Mutual in Cincinnati and Dayton, Ohio.
“There are those things that come up, like a 50th birthday trip,” Stolz says. “If you have regular conversations and communication about your plan, you can figure it out.”
Take time to think about the numbers.
If you pay for a fancy $100 dinner with your credit card and still carry a balance years later, that’s one expensive meal. That $100 could grow to $400, doubling twice over 15 years, says Koos.
“You want to avoid using tomorrow’s debt to finance yesterday’s joy,” Koos says.
Make a plan for fun
Planning for the future is essential, but you can’t put life on hold, says Hiral Hudson, a financial advisor at The Epley-Wolbeck Group with Morgan Stanley Wealth Management LLC in Peoria, Ill.
Strive for a happy medium. Create a plan that saves for retirement and allows for investments in fun money. A budget can incorporate family vacations and other enjoyable activities.
“Don’t deprive yourself of things,” Hudson says. “Plan for it and know what you are saving toward. That makes it easier to be disciplined.”
A holistic financial plan and realistic annual budgets help you make better money decisions in retirement, too.
Hudson talks about clients who started saving for an early retirement at a young age. “They lived within their means,” Hudson says. “They didn’t spend extra money and were always aware of their spending.”
That couple retired in their early 50s and just booked a VRBO for a month-long stay in Austin.
The bottom line
When you have open and honest discussions about your money, you can more easily make decisions about how to spend it.
So the next time emails start flying about planning a vacation with extended family, you’ll be prepared. If the consensus is a cross-country destination at a high-end resort, you’ll know if you can afford it, or if you need to suggest something else.
“Saying no is hard, but when you can do it and wait – that is a victory right there,” Stolz says. “You’ve been honest with yourself and your partner when you make sure you take care of other things first.”