Harnessing the Yen to Spend

Our culture glorifies consumer spending. Part of my job as a financial advisor is to rein in my clients’ enthusiasms that lead to hasty purchases harmful to their long-term financial goals. But that doesn’t mean I am simply a wet blanket.

There are ways to buy stuff that folks want without thwarting their futures. The key is to make plans that accommodate both near-term desires and future security. These are not mutually exclusive.

When one of my client’s favorite luxury car designers introduced its latest model, he felt he just had to buy that new toy. If we hadn’t already worked together to develop a financial plan incorporating his and his wife’s goals, he might have made a disastrous impulsive decision.

When my client called to see if he could afford this vehicle, my simple answer was yes. He had plenty of money saved up to purchase the car. All he had to do was take some from his kid’s college savings accounts, his emergency fund and retirement account. He had enough money to cover the cost, but we already had earmarked it for other things related to his family’s goals. Taking out a loan to buy the pricey car would only add to the problem, as interest costs get tacked onto what he’d owe.

After going over the current allocation of his funds, I joked with him: “You used to say that the retirement, college funds and emergency account were important to you. Have your priorities changed?”

He and his wife thanked me for the refresher and we decided to fund a vehicle savings account to save toward the vehicle when it made sense financially. As the year went on, the couple set aside money each month to buy the auto in cash, and left the current savings right where they needed to be.

Financial advisors regularly help clients weigh short-term wants against their long-term goals. When you earn money, you have the freedom to spend it any way you choose. Exercising this freedom by making impulsive spending decisions is a recipe for disaster. It doesn’t even have to be a major purchase like a new luxury car. Smaller buying expeditions to the mall can be just as harmful, especially if you make a habit of it.

I’m not here to make financial decisions for my clients. I’m an accountability partner to remind them what’s most important and the impact of taking money away from funding their goals when something new arises.

As their desires change, we work together to determine if the new desire is one worth funding and develop a plan to meet the new goal. Sometimes, just waiting a few months to decide puts the issue into better perspective. It can be more satisfying to wait and know that you are making your purchase safely.

As for this pair of clients, they were able to buy the car without wrecking their financial plans. At the end of the year, his wife received a windfall, a larger-than-expected bonus. The financial plan that we laid out accounted only for her smaller regular bonus. She used her extra bonus and the cash in the vehicle savings fund to buy her husband the car, debt free.

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Michael J. Searcy, CFP, AIFA, ChFC, is president of Searcy Financial Services Inc., a registered investment advisory firm in Overland Park, Kan. For more information, visit www.searcyfinancial.com.

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