Oink oink, Piggies.
One of the biggest rebuttals I hear from people when the idea of saving/investing is discussed is the age-old argument that the future is uncertain, and therefore we should live life today like there’s no tomorrow. This is often accompanied by the argument that “enjoying life” by doing things like buying a double-non-fat-soy-pumpkin-spice-latte-with-an-extra-pump-of-syrup from Starbucks everyday is better than forgoing it and instead saving and investing. The argument is based on the fact that nobody knows what will happen in the future, so we should ‘live life now.’ Let’s call this argument the “Live-It-Up-Now” mentality.
Now here is my rebuttal to that argument: Because life is uncertain, we should save and invest. Let’s call this argument the “Prepare-For-Anything” mentality.
“Live-It-Up-Now” versus “Prepare-For-Anything”
We all agree that life is uncertain. Nobody knows for sure what’s going to happen today, tomorrow, or 50 years down the road. We could live to be 120 years old, or we could walk outside and get hit by a bus later today (of course, hopefully none of us do get hit by a bus later today…or any day, for that matter). None of us know for sure how long we’ll live, how healthy we’ll be, or what life might throw at us. How does each mentality approach this?
Live-It-Up-Now Mentality: We might die tomorrow, so let’s live and spend like we’ll die tomorrow. YOLO!
Prepare-For-Anything Mentality: While we might die tomorrow, we might end up living much longer than we expect. Let’s prepare for that so we don’t run out of money when we’re old and less healthy.
Having too much is better than having too little.
While I am not advocating for anyone to become an extreme, selfish cheapskate like Scrooge where you never indulge in anything like eating out or getting a Starbucks, I do believe that we should adopt a prepare-for-anything mentality.
Being young and broke isn’t great, but it’s not tragic. If you’re a guy or gal in your 20s and your net worth isn’t bright, you’ve still got a few things going for you: namely, time and youth. You’re still young, probably relatively healthy, and you’ve got time for the magic of compounding to work for you.
What is tragic is being old and broke. Now that’s truly tragic. You’re old, probably less healthy and with less energy than your former self, and probably cannot easily switch careers into a different field if you want to. If you haven’t been saving and investing, there is little to no time for compounding to work. Being old and broke is tragic.
Don’t never indulge, but avoid lifestyle inflation.
I want to be clear that I don’t think we should only try to live life when we’re old, at the expense of being miserable for all of the beginning and middle of our lives. Sometimes it’s okay to have a Starbucks. Sometimes it’s okay to go out to the movies, or to a restaurant. But we should be aware of lifestyle inflation and avoid it.
When we start getting used to indulgences, they can become normal to us…and that can be financially dangerous.
It’s okay to treat yourself sometimes. But the key word is “sometimes.” Not all the time, and as long as it only makes sense for us to do so financially.
Prepare for the worst…and hope for the best.
What happens when we adopt the Live-It-Up-Now Mentality? Let’s take a look at a couple possible scenarios.
Best-Case Scenario: You spend money like it’s burning a hole in your pocket your whole life. You don’t save enough for retirement, and maybe don’t pay for your credit cards in full every month like you should. You don’t ever retire, because you can’t afford to, and never amass any significant wealth. You probably live in an apartment or small home your whole life. Hopefully no health issues will arise, because you couldn’t afford any unexpected expense.
Worst-Case Scenario: You amass lots of debt and don’t save anything, because you have a YOLO attitude. Your daily Starbucks runs taste good, but you don’t save anything for retirement and have a hard time keeping up with the bills. You may have declared bankruptcy, and retirement is out of the question. You have to stop working because of your health, and with no income or savings/investments, you rely on small amounts of money you receive in aid from the government, along with a few hundred bucks in social security. You downsize to a small studio apartment to help lower your expenses. You have no health insurance or any way to pay for care, so you rely on the emergency room for any care that you need…and cannot afford the bills when they come in.
What about a Prepare-For-The-Worst Mentality?
Best-Case Scenario: You were frugal and invested your whole life, and avoided debt like it was the plague. You rarely splurged on expensive vacations or daily Starbucks runs, but occasionally did treat yourself to something special. You have amassed a great deal of wealth in the form of real estate, stocks, retirement accounts, etc. At retirement, you hope to live a long and healthy life, and know that you have enough to support yourself no matter how long you live. You start spending more in retirement to make your life easier and better; vacations, a housekeeper, and nice cars can be yours if you want it. If you have a health issue, there is no issue in paying for the best care. You have much more than you need financially.
Worst-Case Scenario: Your health may deteriorate in your old age, but luckily you have been frugal and have saved/invested your whole life, while avoiding debt. Because of your preparations, you can afford to have the best health care, great caregivers, and a beautiful home to be as comfortable as possible. Money is no issue, so during this difficult part of your life health-wise, you have no financial worry.
What sounds better to you?
I believe this is a no-brainer. The Prepare-For-The-Worst Mentality is the way everyone should live. Don’t be cheap and don’t never occasionally indulge in luxuries you can afford, but be smart. Nobody knows what lies ahead in the future, so prepare for the worst, and hope for the best. …And there’s always ways to save and invest. Even saving/investing the equivalent of a daily Starbucks can get you over $1 million in retirement.
So be smart, Piggies! Prepare for the worst, and hope for the best! Oink, oink!
-Mr. Piggy Bank