Having “Fun” and the Financial Tradeoff

You might think financial advisors discourage “fun” purchases – but that’s not entirely true. At least, I don’t. Many of you know that, as part of our client reviews, I always ask you about the big-ticket items and the bucket list things that you intend to do in the next year. But why does it matter?

Well, first –remember you have been saving and investing for a while now. So, when you want to buy that new car, second home, boat, or go on your dream vacation, it’s important the spending is included in your planning goals. There are lots of “fun” reasons to spend your money, and that is totally expected, as all of them will create memories for you and your family. In order to make these fun things happen though, it may mean cashing in some of your investments. We need to account for these purchases in your financial plan. A few of you may think to yourself, “wait, do I have a plan?” If you are my client, you do. I create financial plans using software called MoneyGuide Pro. When we meet in the next few weeks, part of our review process is always reviewing the plan, your budget, your goals, and making sure everything is on track.

Why do I use financial planning software? Well, I have been using MoneyGuide Pro since 2005 and I have found it to be an amazing and intuitive software. MoneyGuide Pro helps us account for every dollar you intend to spend, and how those dollars affect your long-term goals. Part of the plan is to help us determine when it’s the right time to make the “fun” purchase, and part of the plan is to tell us where the money will come from to do it. Most of my clients hate to pull money from their investments, but, the timing of when we do this is just as important as the amount.

In your plan, I do try to keep cash, of which the amount will vary depending on where you are in life and the general state of the world. With that said, sometimes it actually makes more sense from a planning perspective to finance the “fun” purchase. With the Fed’s recent low-interest rates to incentivize consumers to spend, financing could be a valid option. Will interest rates always be low? Not likely. But while they are low, there could be pros to borrowing to make your “fun” purchase happen, rather than selling your investments. By selling your investments, you’ll lose your return potential AND have to claim the gain or withdrawal on your taxes. (Remember, it’s ALWAYS best to speak to a financial professional about choices like these to make sure they are suitable for your specific situation).