Choosing When to Spend

There is nothing wrong with spending money. In fact money has no value unless it is spent. As they say, you can’t take it with you, so if you don’t spend your money during your lifetime, then someone else (the beneficiaries of your estate) will get the pleasure of spending it. During your working life and retirement, money will come to you on a regular basis unless something bad happens, such as the loss of your job, a business failure, or a severe health problem. How you fare in life financially will be determined by the timeframe in which you choose to spend the money you receive. As you receive money, you can choose whether to spend it now or later. If you choose to spend some later, you can choose how much later you wish to spend it.

Choosing to spend money later is called saving. Unfortunately, the word ‘saving’ has become associated with depriving yourself of enjoyment of life. The way to view saving is that in fact it increases your enjoyment of life – but in the future rather than now. There are three types of saving. Firstly, there is the saving you need to do to cover unexpected expenses and loss of income. Next, there is saving for big, one-off planned expenses such as holidays, a new car or home maintenance. These expenses occur in the medium term (the next five years or so). Then there is the saving you need to do for the long term, including retirement.

The art of managing your financial affairs prudently is to be able to correctly apportion your income into these different categories; money to be spent now, money for unexpected expenses and events, money for spending in the medium term, and money for spending in the long term.