For years, I tried to stretch my money to its maximum potential. Moving money across different online savings accounts for better rates, taking money out of my checking account as soon as it’s there, paying bills on the last possible day to get more interest,…, the list goes on. Basically, whatever you can think of to earn a few extra dollars or two of interests, chances are good that I’m doing it. My motto was simple – a dollar is better than no dollar.
It was fun at the beginning, but as the number of accounts and bills I needed to keep track of began to pile up, managing the cash flows became a mini part-time job. At times, it was even a little stressful because inter-bank transfers take time, and you don’t want to miss a payment because you mistakenly transferred too much out of the checking account.
Many of you know about my recommendation of investing in low-cost index funds. Again, I’m not in the camp that believes stock picking isn’t a better investment. It’s just that when I weigh the burden of the part time investment analyst job that comes with active investing, it’s not worth the time.
Along the same lines of thinking, I will stop being a cash flow specialist. In order to do so, I will:
Keep money in the checking account as a cushion for monthly and credit card bills.
Setup automatic bill pay, so no bills will ever be late. In cases where automatic payment is not possible, I will pay the bill as soon as it arrives.
Potential lost of interest is expected to be less than $50, which is well worth the lack of stress.
No more messing around with moving money in and out of different accounts to earn more interest. No more stressful days as I impatiently check for transfers to go through. No more reminders about when bills are due. Yeah, there’s some loss of interest, but the lack of stress will more than make up for it.
Sometimes, the choice that leads to more money isn’t the correct one. And this applies to saving money too. Here’s what Miranda, one of our writers, had to say about how hoarding isn’t ideal, or even necessary.
As personal finance writers, we get carried away with the idea that everything needs to be saved, saved, saved. All the time. But personal finance isn’t just about building up emergency funds and maxing out retirement plan contributions. It should really be about learning to maximize enjoyment with money. Thinking that you will be able to amass huge amounts of wealth and then just retire and do whatever you want is nice. But what happens if you are 50 or 60 or whatever, and no longer in prime condition to enjoy the fruits of your years of labor?
Another issue is that of breaking the habits of decades. Many people find that, when they retire, they don’t really enjoy their money because they are still in saving mode, pinching all of their pennies. They are no longer obsessed with saving up for retirement. Now they spend their retirement hoarding money, scared that the money will run out before they die. While this is a legitimate concern, and while financial discipline and saving are very important – vital even – it’s also good to learn how to spend on occasion so that you can get some enjoyment out of life. (You might also learn that spending money also helps you live a sustainable frugal life.)
Money as a Means to an End
I like to think of money as a means to an end. I don’t care about amassing great piles of it. I do know that I need money to pay for life’s necessities and some of life’s pleasures. While you don’t need money to have a good time, the occasional treat for yourself is nice, whether you are buying something you like (my husband’s style) or buying experience (my style).
Neither of us cares about leaving a fat inheritance for our son. We’ve got a 529 for him, but he’s going to help pay for his college, and he’s certainly going to be mostly responsible for his future prosperity. Instead, we want to be able to enjoy a few things now and live in reasonable comfort during retirement (which will probably be semi-retirement, since we’d go crazy in a full retirement situation). Our retirement accounts and investments are aimed at creating income streams later, and we have a decent emergency fund. Could we be putting more in retirement accounts? Probably. But what good is having all that money later if we never actually use it?
Having a Plan for Spending
This doesn’t mean that we just willy-nilly spend money we don’t have. We still have to be responsible. Otherwise, we’ll end up in vast amounts of debt, making interest payments directly into others’ pockets, instead of using the money for us. Before we spend money on things we think are enjoyable, we do a few things:
Pay tithes to our church and make charitable contributions.
Set money aside for emergency savings and investing (including retirement accounts and the 529). This is automated.
Pay our bills.
Fund our long-term goals (finishing the yard, buying new furniture, going on vacation eventually, etc.).
We know approximately how much we need to set aside for the future, and we have a pretty good idea of what it costs to do the things we enjoy, like providing music lessons for our son, going out to eat once a week, seeing a concert or show, buying a fish aquarium, and traveling a little bit. It’s all about taking stock of your financial situation, and figuring out what money you have for spending on things that you may not need, but that you might enjoy. We live fairly modestly now, and we plan to live fairly modestly in the future, so we don’t really need to reach a large number of accrued assets in order to maintain our current quality of life. So there’s no reason to hoard just to hoard, once we make the appropriate provisions for the future.
It’s true that money can’t buy happiness. But if you plan so that you can spend some of that money now, it can provide a little pleasure.
What do you think? Have you been spending too much effort squeezing every penny out? How do you feel about that?
This article originally appeared on MoneyNing.com. Let us know what you think (or read what others thought) here.
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