Pattie Lovett-Reid: How to avoid financial regret and get the biggest bang for your buck
reynermedia / Flickr / CC BY 2.0
Published Monday, February 5, 2018 5:15AM EST
In today’s environment, we feel so much pressure to follow the Joneses down the beaten path. But it’s a direction that can lead us to a path full of regrets, the farther and longer we travel down it.
A low interest rate environment has encouraged many to spend and keep on spending, to the point where debt levels have become not only a household concern, but trumped only by concerns over NAFTA by Bank of Canada Governor Stephen Poloz.
The irony is, when retirees are pressed about regrets they have had throughout their life and some of their biggest money mistakes, the answer frequently taking top spot is spending more on things instead of experiences.
When my father was turning 75, I recall him saying, “I have more money than I do time.”
On his birthday, he distributed $75 to each of his grandchildren and encouraged them to save a little, spend a little and give a little. It wasn’t about the dollar amount, it was about papa giving something to the children which, to this day, has resulted in a lasting memory and sound financial advice.
At the same time, he said to me, “you don’t want to die the richest person in the graveyard.” Not long after, we hired our first cleaning lady, something my parents had never done, but with both of us working we could afford it, and it did free us up to spend more time with the family.
Giving into lifestyle inflation is a tendency that, on the surface, is easy to understand. When you feel underpaid and finally get a small raise, it is easy to fall into what we call “lifestyle inflation.”
You have been scrimping and struggling for so long it’s natural to feel you want to reward yourselves. Try not to, and I respect that is easier said than done. We work hard, we get paid well and naturally feel we deserve treats to reward ourselves. Designer threads, tony homes and flashy cars, to name a few.
Sadly, it can be like going for a run on a treadmill. You can put in a ton of effort but you’re going nowhere, no matter how fast and furious you run. The same sort of thing happens when you spend every dime you have coming in.There is little left for savings that could buy you freedom down the road.
How to avoid the regret of wishing you had been more frugal?
Power of compounding
You’ve heard the mantra, “save early and invest often.” It’s true, and we would be wise to take advantage of what some have joked is the 8th Wonder of the World: Compound investing – making regular contributions and allowing them to grow over time, like a snowball that picks up size the further it’s allowed to travel .
On paper we may get it, but the reality is that in most cases it’s difficult to convince a 20-year-old that now is the time to save for retirement.
Advice: If you had been savvy enough to save early, that was half the equation, but to make it truly effective, don’t ever borrow from your retirement savings for “wants” versus a “need.”
Instead, establish an emergency fund for the unexpected medical bill, car repair and maybe even a long overdue vacation.
My personal financial regret was buying too much home at a time when we could least afford it.
I knew we were doing it, but we did it anyway, only to find ourselves selling it a few years down the road. And we were fortunate: The housing market was moving higher, we sold with a small profit and downsized immediately.
It wasn’t fun being house poor, and wish we had made the decision sooner to sell. A high debt level can create a tremendous amount of stress and friction. The good news is, we followed a bad decision with a great decision.
Mom knows best
I’ll give the last word to my mother: “Each of us needs to really understand what gives us the biggest bang for our buck.”
When you do that, there is less chance of a financial regret.
How does she do it? She is 85, manages her own money, won’t accept financial help from the family (and she doesn’t need it), and lives in an assisted living retirement facility.
She has chosen to live in a bachelor apartment, as opposed to even a one bedroom, because she plans on living a long time and being frugal allows her to be in control and not run the risk of outliving her money.