How To Balance Spending Now And Saving For Later

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There’s a new trend on TikTok where people are encouraging their viewers to spend all their money on travel and have unforgettable, life-changing experiences, especially when they’re younger. While previous generations may have felt pressure to spend on expensive cars and clothes because of their neighbors and co-workers, Gen Zers and Millennials may be tempted to spend more because of influencers and celebrities on social media.

The popular “I’ll return the money, but I’ll never travel in my 20s.” [insert exotic location]”trend features videos of young people embarking on great adventures around the world – swimming in the Mediterranean, riding scooters through the streets of Paris, hiking up volcanoes in Guatemala and, as shown in the video below, running through fields of flowers in Iceland.

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To spend or not to spend?

“I will never again have so little responsibility and be able to travel like this,” says Lieblein. “When can I go to Luxembourg? [just] because I can? So I decided to spend this money [and] I barely had enough for two months’ rent before I got my first paycheck.”

With that first paycheck, Lieblein finally made back the money she had spent traveling. However, Lieblein recognizes the privilege she had of being able to make the journey to Europe and having a job in store when she returned home.

Although Lieblein has no regrets about how she spent her money, Vivian Tu, the personal finance content creator behind the popular Your Rich BFF Instagram and TikTok account, believes this trend is problematic, mostly because of social media even encourage the fear of missing out. out mentality.

“Instead of keeping up with the Joneses, you’re keeping up with the Kardashians, and suddenly all this unimaginable wealth is visually ready to be consumed on social media,” Tu says. “And suddenly you think it’s normal that a 20-year-old travels six times a year.”

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According to a 2019 Credit Karma survey, nearly 50% of millennials said they’ve spent money they didn’t have to keep up with their friends — with most reported spending too much on food, clothes, and travel expenditure.

What to look out for when overspending

Not only does overspending have short-term consequences, you also sacrifice saving for something else that arguably matters more over time. For example, if you refrain from saving for retirement in the present, your future self loses compound interest.

Priya Malani, founder and CEO of Stash Wealth, a millennial-focused financial planning company, tells Select that there’s a significant difference in the amount of savings she sees from her clients who started saving at a young age, im Compared to those who started later in life.

Let’s break this down with real numbers. Say you want to save $1 million by the time you turn 65; You would need to invest $530 a month for 40 years starting at age 25 (assuming a 6% annual return). However, if you waited another 10 years to start investing, you would have to invest $1,050 a month for 30 years by age 35 to end up with $1 million (again, assuming a annual return of 6%). This means that if you waited 10 years to start investing, your monthly investment would have to be almost double that.

Overspending can also be costly if you use a credit card to fund your walk and you don’t pay your bill every month. The latest data from the Federal Reserve shows that the average APR for interest-paying cardholders (that is, those who don’t fully pay off their balances) is a whopping 16.65%.

If you find yourself spending more than usual just because your friends are doing it, Tu recommends offering a cheaper option. “It’s important to offer an alternative, so people realize that you want to hang out with them as much as they want to hang out with you,” explains Tu. “It’s just that you can’t do that activity.”

If someone in your group wants to go to an expensive restaurant, you can suggest affordable alternatives, e.g.

It’s easy to feel tempted to spend money to hang out with friends — or to travel because we’re inundated with pictures of others on vacation. It’s best to start by creating a budget based on your personal values. Creating a budget is about making compromises. So if you spend more in certain categories, it means you spend less in others. For example, if you prioritize travel, you could forego dining with friends to save up for a flight to Maui.

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Get creative with your spending so you can do both

Malani believes it’s possible to spend money on experiences while you’re young and at the same time, prioritize your future financial self.

“If you want to balance experience in tracking long-term financial goals like retirement or buying a house, then balance it out,” she says. If you want to be able to do both, sacrifice both so you can achieve that balance without overwhelming yourself.”

People can try to find more affordable travel options so they don’t sacrifice their emergency fund or retirement savings, Tu explains, which could mean using credit card points or airline miles to fund hotel stays and flights and opting for cheaper, closer vacations Destinations.

This is where travel rewards credit cards can come in handy – many of them have low or no annual fees, come with generous welcome bonuses, and include many travel-related perks. However, note that these types of cards usually require applicants to have good or excellent credit in order to be approved.

For example, the Capital One Venture Rewards credit card comes with a $95 annual fee and allows you to earn double miles on all eligible purchases. New cardholders can also earn 75,000 bonus miles after spending $4,000 within the first three months of opening an account.

While the redemption value for Capital One miles varies, when you book travel directly through the Capital One travel portal, a mile is worth a penny on airline tickets, hotels and other award redemptions. That means you’ll get at least $750 worth of trips from the welcome bonus alone. And who knows who can maximize their points by transferring them to the right partner (e.g. airline or hotel) could double or triple the value of their redemption.

Another popular travel rewards option is the Chase Sapphire Preferred® Card, which includes a $95 annual fee and a welcome offer of 60,000 bonus points if new cardholders spend $4,000 within the first three months of account membership.

When using this card, the redemption value is 1.25 cents per point when redeemed through Chase Ultimate Rewards®, meaning your welcome bonus can be worth up to $750 in flights, hotels and other travel expenses.

Chase Sapphire Preferred® card

  • Reward

    $50 annual Ultimate Rewards hotel credit, 5x points on travel purchased through Chase Ultimate Rewards®, 3x points on dining, 2x points on all other travel purchases, and 1x points on all other purchases

  • welcome bonus

    Earn 60,000 bonus points after spending $4,000 on purchases in the first 3 months of account opening. That’s $750 when redeemed through Chase Ultimate Rewards®.

  • Annual fee

  • Introduction APR

  • Regular APR

    17.49% – 24.49% variable on purchases and balance transfers

  • transfer fee

    Either $5 or 5% of the amount of each transfer, whichever is greater

  • foreign transaction fee

  • credit required

Discover it® miles

On the safe side of Discover

  • Reward

    Automatically earn 1.5x unlimited miles for every dollar of every purchase – with no annual fee.

  • welcome bonus

    Discover will reconcile any miles you have earned at the end of your first year.

  • Annual fee

  • Introduction APR

    0% introductory APR for 15 months on purchases.

  • Regular APR

  • transfer fee

    3% transfer fee for introductory balance, up to 5% fee for future transfers (see conditions)*

  • foreign transaction fee

  • credit required

We know it’s tempting, but before you sign up for one of these credit cards — especially if the lucrative welcome bonus is your main motivation — make sure you can pay out your balance on time and in full each month to avoid paying late fees and high interest rates. The cost of these charges exceeds the value of any points or miles you may earn.

Also, don’t apply for too many cards at once, as each application submitted will result in a temporary reduction in your credit score, although a new credit card, if managed responsibly, can help improve your credit score in the long term.

Finally, make sure you sign up for a credit card that fits your regular spending habits. And if you don’t think you can spend (and pay back) the minimum amount required within the timeframe to claim a welcome bonus, it’s not a good idea.

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Editorial note: Any opinion, analysis, review, or recommendation expressed in this article is solely that of Select’s editors and has not been reviewed, approved, or otherwise endorsed by any third party.

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