Save It or Spend It?

Money can’t buy happiness and the Bible says the love of money is a root of all kinds of evil.   A 2015 survey by the American Psychological Association found 64% of Americans say money is a source of stress.[1]   When it comes to money we have a couple of choices; we can save it or spend it.

I’m a saver by nature and enjoy investing money.  I remember my first savings account as a kid and was thrilled when my balance soared above $60 because I thought I had it made.  I’ve been told my entire life that money can’t buy happiness but this isn’t entirely true because when it comes to experiences money can buy happiness.  According to a Wall Street Journal article on money and happiness it said, “People think that experiences are only going to provide temporary happiness, but they actually provide both more happiness and more lasting value.”[2]

Peggy has been a client of mine for over twenty-five years.  We’ve enjoyed a great relationship and during our recent quarterly review of her account and investments we mostly talked about her travel experiences.   Peggy has taken amazing trips during her lifetime and they’ve created life long memories.   She told me a story about a trip she made with her young family to Crater Lake in Oregon.  She recounted the beauty of the area, especially the brilliant blue water.   She didn’t recall the cost of the trip but years later still receives joy when thinking about her experience.

Peggy and I have adopted a buy and hold strategy for her investments by owning a mix of high quality mutual funds.   Every year she will withdraw money from her account to fund her trips.  In a way, I feel like I’m on the trip with her as she tells me her travel stories from places like Fiji, Alaska or Europe.   We’ve experienced many market cycles together and, despite several stock market corrections, five U.S. Presidents and annual withdrawals, her account continues to grow and support her lifestyle.  She’s a bold and courageous investor not afraid of market drops and her investment strategy has served her well over time.

Here are a few tips to help you as you grapple with the saving or spending battle.

  1. Take the trip. It’s time to spend some money on your dream trip and cross it off your bucket list.   It may be expensive and cause a dent in your net worth but when you reminisce about your trip years from now you’ll be glad you made the trek.   When our daughter was young my wife and I decided to take amazing trips so we could create incredible memories.  I’m glad we spent the money because I look back on our family trips with fondness and happiness.
  2. Do it today and don’t wait for tomorrow. If you wait for the perfect time in your life or a certain level of assets, you’ll never take your trip.  Also, we don’t know what tomorrow will bring.  A former client of mine was waiting until he retired to travel the country with his wife and a month after he retired she passed away.  Proverbs 27:1 says, “Do not boast about tomorrow, for you do not know what a day may bring.”
  3. Use your vacation days. Most employees don’t take their paid vacation for fear of not getting their work done or having their employer question their dedication.[3]   If your company is giving, you should be taking.  It’s true your work won’t get done but I doubt your company will question your dedication.   I once took a four-week trip across Europe with my family and when I returned to the office the company was still standing.   I did have thousands of emails upon my return and my company still valued my work.  In the end, I’ll remember my family trip more than the pile of paperwork or what my company thought about my work ethic.
  4. Invest for growth and dividends. A portfolio designed for growth and income will help fund your experiences.   It’s also okay to spend your principal on your trips because your investments will replace what you removed from your account.   If you turn on your faucet to fill up a tub with water and then remove the water with a bucket, it will be replenished with the running water from the tap.   For example, you invest $100,000 in the Vanguard S&P 500 Index Fund (VFINX) on August 31, 1976 and start removing 5% of your account balance every year.   As of June 30, 2017, forty-one years later, your original $100,000 investment is worth $855,000 and you’ve taken out over $883,000 from your account.[4]
  5. Post it. Post your amazing trip on Facebook and Instagram so your friends can see what an amazing time you’re having and perhaps be inspired to take a trip of their own!

Take Peggy’s advice and travel the world, you’ll be glad you did!

The world is a book, and those who do not travel read only a page. ~ Saint Augustine

Bill Parrott is the President and CEO of Parrott Wealth Management and is a fan of travelling the world.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

July 16, 2017

Note.  Your returns may be more or less than those posted in this blog.  Peggy gave me permission to tell her story.

[1] http://www.cnbc.com/2015/08/03/most-americans-rich-or-not-stressed-about-money-surveys.html, by Shelly Schwartz, 8/3/2015.

[2] https://www.wsj.com/articles/can-money-buy-happiness-heres-what-science-has-to-say-1415569538, By Andrew Blackman, 11/10/2014.

[3] http://www.marketwatch.com/story/55-of-american-workers-dont-take-all-their-paid-vacation-2016-06-15, Quentin Fottrell, 5/28/2017.

[4] Morningstar Office Hypothetical Tool as of June 30, 2017.

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