illustration by Dana Risley
We want to spend our money on things that stay with us. We go for the biggest TV or most expensive necklace, then tend to write off things we dream of doing as frivolous. After all, zip lining in Costa Rica with the whole family carries a heavy price tag and is a fleeting moment. But investing in shared memories with our loved ones can be more valuable than we think.
“There have been psychological studies that show over time the value of stuff people buy goes down. But the value of shared experiences and memories actually goes up over time,” says Jesse Hurst, CEO of Impel Wealth Management in Cuyahoga Falls.
That explains why we don’t remember the jean jacket we got for our 12th birthday, but we can recount our childhood trip to Australia in detail. Hurst has assisted many clients with saving money for meaningful family experiences.
“A big thing for a lot of our clients is: How can I use the resources I have to create shared experiences that will be important memories to my kids and grandkids 10, 20 years down the road?” says Hurst, a certified financial planner with an Accredited Investment Fiduciary designation.
Before you go to la-la land with all the possibilities, take these measured steps to make sure paying for your dream doesn’t hijack your long-term savings plans.
illustration by Dana Risley
Green Light
It’s difficult to put a price tag on a dream, but when it comes to keeping your financial plan on track, it’s necessary. Hurst offers a client example. One couple wanted to create a memory celebrating their 50th anniversary with a weeklong island cruise for 17 people, including their four children and each child’s family. They added up the price of activities and flights, and the bill came to a whopping $34,000.
“What they really wanted to do was share an experience with their grandkids while they were young and healthy enough to do so,” says Hurst. “We sat down two years in advance and started planning. How much do we need to save? Is it feasible? Can they withdraw the funds and still have enough money to live on in retirement?”
Getting the exact numbers to your financial planner years out is key to determining whether taking out $34,000 for a trip would still leave enough for your other necessary expenses and priorities down the road. If you find it’s doable, also consider what you will have to give up.
Hurst offers another client example. A daughter had gotten into Bowling Green State University with scholarships that made tuition $16,000 a year, but she wanted to go to the University of Dayton, which would cost $30,000 a year with scholarships. It would cost the parents an extra $56,000 to send their daughter to her dream school in Dayton.
“You can have everything you want. You just can’t have everything,” Hurst says. “If they want to send their daughter to the University of Dayton, they could do that. Instead of retiring at 64, they were going to retire at 68. That’s a decision.”
If you are comfortable with spending now and sacrificing later, it’s time to start laying out the steps to do so wisely.
Slim Down
The quickest way to make room in your budget is to cut the fat. Many expenses are beyond your control: mortgage, health care, utilities, car payments and more. What’s left is the money you spend on wants.
“If you want extra cash flow to save for goals, it really comes down to discretionary spending,” Hurst says. That means coffee at home instead of daily Starbucks runs and a staycation or road trip instead of a big vacation.
Some people work longer and retire later. Others put less into retirement or other savings accounts to afford a large expense. But do so cautiously. It’s important not to dip too deeply into your retirement plans and offset the stability you’ve worked to build.
Make sure all the money you free up goes directly into savings. Some people move money they are saving to a separate account just for that goal to discipline themselves to stay on track and avoid the temptation to spend it.
“There’s a psychological term called mental accounting,” Hurst says. “If I open a separate account that’s specifically for this goal, people tend to do better saving and investing for that goal because mentally they have that money segregated.”
Look into the interest rate for your bank accounts. To really help your money grow, you want savings accounts to earn interest, ideally 2 percent or more. If your bank doesn’t offer that, look into opening a high-yield online savings account that earns 2 percent or more interest at a bank like Capital One. Other savings options include short-term bonds, which are investments that usually mature in less than five years and carry a modest risk and higher yeild than a bank savings account, or money market funds, which are investments with relatively low risk and a quick return. Consult with a financial planner to find the best savings option for you.
Get Back into Shape
Once you have enjoyed your dream vacation or finally put in that pool you’ve been wanting, it’s time to head back to the financial planner and redraw a plan that gets you back in line.
This is where budgeting returns and you have to start spending less at the mall, bar or restaurant. Those who diverted from investing money into retirement plans or other savings accounts have to face what they lost while funding their dream.
“One of the biggest things you are going to lose in that process is time,” Hurst says. “One of the biggest benefits of a 401(k) is compounding money over time. If you don’t put money in for a while, then you try to make up for that down the road, you’re losing the benefit of compounding.”
Hurst has a trick to make up for savings that won’t feel like a big loss. If you get a 2 or 3 percent raise each year, use that increase to up your 401(k) contribution — you’ll see more in your paycheck but make up for lost savings, too.
Affording your dream is possible. Hurst says it’s important to keep a healthy balance between your expenses and savings, and to not lose sight of the ultimate goal: saving for retirement.
“It’s got to be looked at in a holistic manner,” he says.
