A healthy balance between planning for today and the future is more important than you might think.
By Jasmin Suknanan, CNBC featuring Brett M. Gersack, CFP®, AIF®, Senior Wealth Advisor at Halbert Hargrove
Money management can be stressful, especially if you’ve been trying to create a financial plan without help from a professional. With so many future life events to take into account — getting married, starting a family, buying a home, paying off your student loans, traveling, retiring and more — it can sometimes seem like you basically need to save every dime for future you with nothing leftover for the present.
Spending money is pretty much inevitable. And while there are many thoughts on how much you should have saved at every age, the race to build wealth can can make it hard to focus on the here and now. This is why it’s important to have some financial flexibility.
Having financial flexibility doesn’t mean loosening the reins and throwing caution to the wind when it comes to your money. It means striking a healthy balance between planning for today and the future, explains Ashley Russo, a financial advisor for Northwestern Mutual.
“You give yourself the freedom to enjoy life today without taking away from your future self,” she says.
Is there such a thing as being too strict with your money?
Your future goals and current lifestyle can play a large part in how much money you have available to set aside for your dreams while also living life in the present. Someone who is paying rent and paying down student loans may have much less discretionary income compared to a person who is debt-free, doesn’t have any kids and lives with their parents.
And as life goes on, both your income and your expenses may increase. You may have your own family to take care of, realize that you need to move from an apartment to a house, take care of an elderly parent and more. There are just so many life events that can change the way you’ve been planning — and sometimes, it’s hard to afford it all and still save for your own future.
So when it comes to how strict you should be with your money, the answer is: It depends on your goals.
Not everyone needs to be as uncompromising with their saving as popular media — influencers, billionaires, financial websites — insists they should be. It all depends on your goals and how much time you have to reach them.
If you’re 25 and want a modest retirement at 65, you’ll be able to get away with saving less each month compared to someone who’s 35 and wants to retire early or travel the world.
“There are some people who want to retire early. If that’s truly your priority then you will have to save more aggressively compared to people who gave themselves a longer runway because they want to retire at 60 or 65,” says Russo. “It all boils down to what your true wants are.”
Not understanding what you truly want from your life could lead to undersaving or oversaving — aka not having enough money or having too much money. But even having too much money won’t necessarily mean you’re more satisfied with life if you missed important occasions and decided to say no to cherished events to save or earn extra money.
“We saw it in the pandemic,” Russo says. “Although some people had extra money, it didn’t mean they were any happier. There needs to be a balance between having money, saving money and spending money.”
As humans, we want to have experiences with our money, she explains. So we need a balance between earning, saving and enjoying how we spend our income. But some people tend to put too much weight on one aspect over the others.
At the height of the Covid-19 pandemic, many people began limiting how they lived because of the financial uncertainty. Some people were afraid their assets would diminish and others were worried about getting laid off and not having any income to support themselves and their families. Others realized that it was time to make some serious changes in their money management habits.
“There are some people who are still not living life as they should because they aren’t over [the pandemic],” says Brett Gersack, a senior wealth advisor at Halbert Hargrove.
How do you practice financial flexibility?
When it comes to figuring out how to strike that balance between spending money now and saving it for the future, you need to make a plan for how you want to use your money — aka, a budget.“It all starts with the budget,” Russo explains. “It’s so hard to know where you’re going if you don’t know where you are. With a budget, you’ll know how much you need for your expenses, how much you can afford to save and how much you have for other goals, like taking a trip or buying a house.”
With a budget, you should factor in things you really care about — like traveling, dining out and celebrating birthdays. There are many platforms out there that can help you get started with a hassle-free budget, but the Mint app lets you connect your bank accounts, investment accounts, bills and credit cards so you can track everything in one convenient place. It will analyze your spending to help you create a visual breakdown of where your money goes. Plus, it can help you keep an eye on your net worth.
Honesty is the most important policy when it comes to budgeting. Overspending in a certain category can certainly be stressful. But if you notice a consistent pattern of spending more than you’ve allowed yourself for the same expenses, it could be a sign that you need to budget more to cover those costs.
Practicing conscious spending can also help you create a financial plan that strikes a balance between living your life now and saving for the future. Spending consciously means that you’re purchasing the products or participating in experiences you really love while cutting out the costs for things you aren’t actually interested in.
By cutting these expenses, you’re freeing up cash that you can redirect toward your savings or other activities you enjoy. So maybe you love going to concerts but don’t really watch TV; you might create a plan that allows you to stop paying for your streaming services so you can use that money to buy concert tickets and boost your retirement contributions.
Bottom line
Setting yourself up to have a financially secure future can be stressful — especially when you feel the pressure of having to spend money every time something comes up. But managing your money with financial flexibility in mind can take away some of that stress. By gaining clarity on what’s important to you, you can create a plan for how you’ll spend for it while still saving for the future.
Register for Fearless Money Talk and conquer the 3 roadblocks to achieving financial freedom: www.fearlessmoneytalk.com
