What's the point of saving money?

I've been meticulously saving and investing the money I make, watching my spending, and making sure that I live within my means. So of course it came as a shock to me that several of my friends, who were to me "living large" (buying luxury stuff, eating at the best restaurants, in general just throwing money around like nothing) admitted that they had several maxed out credit cards and were in debt, not including the fact that they still have to pay off their student loans.

But they all seemed to carry the attitude of "lets hope the government forgives these loans", and did not seem to have any sort of plan to clear this debt. The only plans they seem to be creating are when they are going to go to the next fancy rooftop bar. I mean....hearing all this, what is even the point of saving money?? It seems like so many Americans get away with recklessly spending and being in debt, and then they just die....and then what? Is the debt collector going to come knocking on their grave?

Interested in hearing your guys' thoughts on this, and if you also have seen similar (people spending recklessly, living way past their means, but not ashamed at all).

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Comments (59)

  • Associate 1 in ER
Nov 12, 2021 - 4:29pm

You're right - go max out some credit cards so you can be justtttt like them 

Nov 12, 2021 - 4:36pm

The direct answer is of course - there are a lot of people who live beyond their means. Some out of necessity as they either made poor choices or just had really bad luck. Others because they want something they are unwilling to work or wait for thinking they simply 'deserve' it. 

The saddest, though, are who you described. I've blown plenty of money on shit like you described - but never went into debt to impress my 'friends' or people who didn't give a shit about me. They might be happy now - or pretend to be happy - but it will catch up to them. Look at all the sports players, celebrities, etc. who have crashed hard due to reckless spending. it catches up to you. 

Don't count other people's money. It's the best advice I can possibly give you. it will drive you crazy. Worry about your life, what lifestyle you want to pursue and save/invest/spend accordingly. I will be the first to admit that I used to spend like crazy, not 'caring' about savings because YOLO. Nowadays I still spend - but save consistently high percentages of my income, invest, etc. Part of that is because my income has gone up but I've dialed back my mentality. Saving and investing provides you a better quality of life for the future. Period. 

Nov 12, 2021 - 4:47pm

I was gonna type out a long response but this is spot-on. Who gives a shit what other people do? I have an uncle who always talks about his new truck or buying something - I have another uncle who is extremely successful but never mentions anything to "brag". There will always be someone with more money - you can try to live like them, or you can be content living within your means.

I seriously debated getting a new corvette even though I wanted a 911 Turbo S. Half the price and something I could afford, but I already have a car that's only a couple years old that I like. Ask yourself whether you would rather be stressed due to possibly overspending or if you would rather be content with what you have knowing your emergency fund is enough to take care of yourself and those you care most about

Most Helpful
Nov 12, 2021 - 4:52pm

I don't spend beyond my means, but have spent a lot of money on life experiences and traveling.

I spent a lot of money in the bars and clubs of NYC, but view it as a positive life experience. 

You can't spend money once you die and I view the 20s and 30s and 40s as the prime time in your life to have a good time while you're still physically fit and agile. I've visited 23 counties and visiting other cultures is very interesting. Especially if someone invites you to dinner in another culture - it's a big compliment. I've been invited to mate (drink) with some Argentinians and it was a very intimate experience sharing a hot cup of it from a steel straw with the group. It had the same vibe of passing around a shared joint.

Art and culture are an important part of life and sometimes they can be expensive. Culinary arts - eating at good restaurants, the expense of a plane ticket to visit another culture, etc. But, it's worth it and maybe better than sitting in a room looking at a screen of the balance of your savings going up. 

Luckily when I was 30, I inherited a $25mm trust fund so traveling doesn't take too much of a hit to my savings. jkjkjk I wish. 😂

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

  • 20
Nov 12, 2021 - 5:23pm

Great comment Isaiah. Regarding trust fund, I don't ever see myself setting one up for my kids where they get a lot at once. Maybe like $100k a year once they're 30 or something, but they wouldn't know they had one and wouldn't receive anything unless I died

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Nov 13, 2021 - 3:55pm

Yeah

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

Nov 12, 2021 - 7:19pm

Never shied away from life experiences I thought were valuable. Not to quote Marvel, but "when you can do the things I can, but you don't, and then the bad things happen, that's on you." I like this quote because it's not about being a hero. It's about looking after the little guys. With the little extra couple bucks I save, I can buy food, clothes, medicine, school supplies for kids that don't have the opportunities of developed countries. Nothing against bottles & models - that's all fun in moderation. Whatever floats your boat so this is another good thing to do.

VP
  • 5
Nov 12, 2021 - 7:46pm

The point is to give yourself options down the road. That's not to say you go the extremes and save and invest every penny at the expense of living your life, but being financially responsible gives you options down the road and insurance for when shit goes bad. If I lose my job, I literally don't care that much. Even if I didn't find something else for 12 months, I'd be chillin and whatever principle I've already invested would still be compounding for decades.

Yeah, I sacrificed some experiences in my 20s, but thankfully for me, much of that was shit I didn't care about anyway. I figured out things that make me happy early on (namely travel, fitness/health, and nights out with friends) and spent money on those within reason while cutting out crap I don't care about but others do (i.e. eating out, Starbucks coffee, seeing big name artists at clubs, bottle service, etc.). With the choices I made in my 20s, I'm now in a position where I can semi-retire probably at ~40 (barring a gigantic market correction/stagnation) or at the very least can pursue less intense work or NFP work I'm passionate about without worrying about leaving my higher paying, but higher stress consulting job to pay my bills. 

It's all about balance, and that ideal mix is different for each individual, but your friends will likely be feeling some pain when they have a family and can't afford Little Johnny's college or have to make major lifestyle sacrifices to do so when the time comes. There is 100% value in delaying gratification, but it's hard to see them in the moment.

Nov 13, 2021 - 12:54pm

I think you missed my point. I never said that you'd become "the next Warren Buffett by cutting back on $3" coffee. The point of my post was that I figured out what I cared about, what I don't and tailored my spend accordingly to balance between enjoying life now versus being prepped for the future. I now buy expensive workout clothes from Lululemon/Rhone/Ten Thousand that most people would deem a waste of money, but I do that versus buying coffee every morning because those shorts bring more utility to me personally than coffee or say, avocado toast (just to continue cliches Boomers use on Millennials' spending habits, which I think is what you were implying) 

Nov 28, 2021 - 10:50pm

It adds up. $5 * 365 / .6 = $3k per year

It's not just about "Starbucks", it's applying that same principal to other areas of your life. Instead of ordering Uber eats, meal prep (this one saves me literally thousands). Using an app to find the cheapest gas (can save you $10 each time in California). 
 

Making a ton of decisions like that can really add up. But obviously need to use balance

Array

  • 2
Nov 13, 2021 - 2:46pm

When it comes to your kids CRT is real. For everyone else, it's not. Classic limousine liberal.

Array

  • 1
Nov 13, 2021 - 2:59pm

I'm not someone who chalks up everything in this country to institutional racism, but the fact is during our history many "color blind" laws have been racist, for example black veterans were supposed to get the GI bill benefits after WW2 but many colleges and suburbs would not allow them to enroll or move in.  If you ban discussion of that, then you're censoring history.

Nov 13, 2021 - 3:00pm

https://www.bestcolleges.com/research/student-loan-debt-forgiveness-can…

No age bracket (including Gen Z and Millenials) has a plurality supporting the full cancellation of federal student loan debt. This doesn't even get into private loans, which the federal government doesn't have authority to cancel (they would have to pay the balance to private lenders). 

More likely than not your friends are going to see their FICO score deteriorate, which will always be a huge problem when they try to get another credit card, rent in another complex or buy a house. This reckless lifestyle will catch up to them. 

Array

  • 2
Nov 15, 2021 - 11:34am

Yep, everyone should just not go to college and pour cement for a living.  It's not like most new jobs need a degree or anything like that (9 out of 10 😮 of the net increase in jobs).  Conservatives have no solution to any problem this nation is facing besides cutting Bezos's taxes.

https://www.marketwatch.com/story/nine-out-of-10-new-jobs-are-going-to-…

Funny enough Biden's infrastructure bill will probably be the first time a lot of non-college jobs will be created in a long time, but the "brandon" folks always bite the hand that feeds.

Nov 13, 2021 - 3:14pm

I think about it the following ways 

1. Save money so you can make more money which means you can spend more money. If i have 100 dollars, maybe my disposable income out of that portion is 50 dollars. If i invest it, I can hopefully get 200 dollars and then my disposable income is 100 dollars. So save money to improve your lifestyle. 

2. Difference between rich and wealthy. Saving money can help out your kids and your kids kids.

Nov 13, 2021 - 6:01pm

Saving money can help out your kids and your kids kids.

How long does an average trust last? I have a handful of people who I know whose grand-grand parents were affluent but then the subsequent generation squandered the money and now the family lives middle class.  

Array

Nov 14, 2021 - 5:13pm

Life is about options and flexibility - savings provides you with that. What happens when the next major downturn happens and 50% of them lose their jobs, regardless of performance. I've worked through 2. Another will be coming soon enough. Do they have parents that will bail them out? Do they move home and live in the basement? I've seen all of that happen. Will they ever be able to buy a house, marry or have kids? I had a college buddy who was a banker at CS and took your friends' approach. He got laid off in the tech bust and took over 10 years to fully recover. He finally did because he is a smart guy, but he literally moved back home and vanished for years. 

  • 2
Nov 14, 2021 - 9:50pm

I think this comes down to multiple issues. Some people involved can have one or many; its a vast and very liquid floating scenario:

1. I think we have a bias of only hearing people who are doing things in excess. Almost a survivorship bias, you don't hear about the people being diligent with their money. Brings into question taxes and stuff like that; you can be extremely careful with your money, save up a couple million through your whole life, then you're painted as the "bad guy" because other people did things like go to colleges they couldn't afford so you have to be taxed higher. Not meaning this as anything political or slamming anyone, but I can see where the OP is questioning his lifestyle vs someone who is basically the opposite. 

2. Some people don't know how to save/are all about YOLO. Kind of intertwined with everything. Some people like to live in the moment, and don't think far ahead. As we all know, mostly people can spend money faster than they can make it (sans prob Bezos with the Amazon sales). 

3. some people feel they identify as the "money person". Somewhat similar to my point #5, but some people, even in smaller towns, feel they are seen as "best dressed" or "always has a fresh cut". They look rich, they have to keep that standard up. 

4. Some people have to a certain level of excitement, being in debt and constantly having to balance payments fulfills that for them. I think they see it almost as a game. But also, they could have grown up in an environment like that.

5. For some, spending money on luxury and telling others about it is the way they derive utility from their money. Some people like to be flashy, they don't care about saving money, but they do care about telling people about their super expensive vacation, or the look they get when they drive their new car. 

6. In the long run, they think they can figure things out. Maybe they look at it as, whats the worst that can happen, they go bankrupt? But I always say, people do as they see. If you look at guys like Trump or Jordan Belfort, people think they personally are bankrupt but they also seem to live pretty high. 

7. They would rather live as a king/queen for a day, then a prince/princess for their whole life. I think about this whenever you seen some of the guys who commit ponzi schemes. Take Madoff for example, guys smart enough to know how the whole things ends. He was basically waiting until the music stopped, but he know it would stop. However bad the stuff he did was and however many people he heard, the one thing that can't be taken from him is the memories of how he lived, the luxury stuff, the country clubs, the penthouses. I think there are some people in debt like that, yea they know they can't afford the luxury rooftop bar for drinks, but they would rather have that and nothing done the road. 

8. Money is a psychology. This kind of goes with people not knowing how to save. I think everyone has a certain limit of money to them they consider "petty cash". Could be $5, $10, $20, $100. "I bought it, it was only $20 bucks", "Dinner wasn't expensive, it was only like $100", "got a couple drinks, it was only $50". This type of spending adds up quick. 

  • Analyst 1 in IB - Cov
Nov 14, 2021 - 10:40pm

Might get monkey shit for this. When I took my Econ 101, my professor said: wealth is what you save, not what you make. 

I think that echoes what Kiyosaki said in Rich Dad, Poor Dad. If your lifestyle elevates with your income, you are still heavily indebted, just in a different sense. Imagine, now you are an MD, and you own 1 Porsche, 2 nice boats, 3 vacation houses, and afford some nice trips to wherever 3 times every year for your family. Your kids go to private school and your wife, who doesn't make a lot of money, buys 2-3 Hermes handbags on a monthly basis. Can you afford that lifestyle? Yes, you can. Are you a rich man? When you lose your job or some Black Swan hits, you may not be anymore.

Nov 15, 2021 - 4:58am

Here's my view... I do not see the point of growing my net worth until I pass away leaving a large inheritance / property, instead I want my wealth to follow a normal (or perhaps lognormal) distribution curve.

By this I mean that I want my net worth to peak in my late 30's. Then, I intend to quit stressful work to pursue something I genuinely enjoy that doesn't pay well (or at all). At this point I will slowly start spending more than I am putting aside each month, gradually eating into my investment portfolio, and eventually even selling properties until there is nothing less by the time I pass away.

For me personally, this justifies putting aside a little extra in my 20's to allow for an early "peak" in my net worth. FYI, I am not overly frugal, I do everything I want / need to feel happy and enjoy life, I just don't go over the top. I think a lot of folks who live overly "lavishly" and don't bother to save / invest will end up grinding their who life, and that just doesn't seem worth it to me.

Nov 15, 2021 - 8:36am

the point of saving money is for it to be consumed later for a positive life experience or to be the insurance agent of last resort for your family. I do not believe money is a scoreboard so don't care about accumulation for its own sake

read die with zero by bill perkins. there's 2 bad scenarios you can have - the grasshopper and the ant. the ant saves and saves and saves and never enjoys the fruits of his labor while never going bust. the grasshopper lives like there's no tomorrow and gets smoked when some shit does hit the fan. life is about striking a balance between the two, neither saving too little nor spending too little, but most importantly, being intentional about it and not trying to be happy by comparison. sounds like your friends have the positive life experience part down but aren't being intentional about it. sounds like you have the saving aggressively part down but you may be forgoing positive life experiences at the same time. 

on your friends, hoping for a bailout is a fragile strategy and I'm definitely opposed to it, always live within means unless absolutely necessary (e.g. I won't bat an eye if I have to go bankrupt because my wife needs some crazy expensive surgery to save her life). I'd suggest you're not enjoying enough of your money and may be oversaving.

here's what I do for clients and a bit of what I've started to incorporate for myself, the overarching idea is "once you have your shit taken care of spend however the fuck you want to." first, emergency funds. everyone has a different amount. in my case, it's about 6mos of bills + enough to meet insurance deductibles. next, save for retirement, for some people this may be 10% of income, others it may be 60% of income. after that, do whatever you want. sure you may want to save money for "optionality" like if you hate your job and want to pay for b-school, if you want to fund your own venture, but don't just save money so you can brag to your friends how you turned your $70k bonus into $200k with some lucky stock trades. good for you, what's that money going towards? nah, fuck that, your trading account is not an extension of your personality, it's a means to an end. so after I've got my emergencies and retirement savings for the year taken care of, I allocate cash towards other things, at the moment it's a combination of 2022 travel and a down payment on next home/forever home.

I can't tell you how you should spend, but I will say that if you're an oversaver like many of my clientele, you're not likely setting a specific savings goal every year and then actually upping your spending once you've hit it, you just keep socking money away. stop that. do some reflection (plenty of ideas in the book), allocate those experiences to various points in your life, and ensure your money has a purpose beyond becoming more money in an account somewhere

for example: say you've maxed out your 401k, backdoor roth IRA, and have your emergency funds taken care of, what will give you more positive memories in 20 years? if you put $10k into your investments and grew it at 30%/y? or, if you took $10k and did a sick ass trip, whether that's vegas, a supercar experience, a luxurious week in europe, whatever? your ability to retire likely won't be impacted, but you'll be a happier person as a result

Nov 15, 2021 - 1:11pm

This. This is a great comment.

I would add to this by saying that for most of us on this forum who are at least a few years into our careers and making well into six figures, it should be quite easy to strike a healthy balance between saving and spending. What I continue to find intriguing, if not downright shocking, is how many of my high-earning friends pinch pennies and try to hoard money with no clearly defined savings goals outside of "retirement." What for? Especially as a high-earner in your 20s, I view this as needlessly unnecessary. I think part of it stems from the notion of finance people thinking "oh yeah I am gonna retire and leave finance in my early 40s." As noble of a goal as that is, I say lol yeah right, especially after you see your income scale and your job become less detail-oriented & process-based.  

  • Analyst 1 in IB - Cov
Nov 15, 2021 - 2:05pm

I think the balance is splurging on things that bring you happiness and skimp on things that don't. I like splurging on food and experiences in general and will spend in those areas without worrying because I can afford it. But when it came to housing, I have a good sized room but its an older building without lots of amenities. I pay hundreds less in rent than most of my coworkers but its not something that would've made me that much happier. 

Nov 15, 2021 - 3:08pm

I think it's twofold

1. they have no time to truly enjoy their funds

2. they believe that once they're "free" they'll be happy and that's a stronger pull than heroin, and so justifying their martyrdom becomes necessary to maintain sanity as they chase that dream (no amount of frugality will get you to happiness)

however, often times the net worth target gets hit, but the goalpost has moved. at first it was $5mm at 40, then take a cushier job, maybe travel the world for a bit, maybe start your own consulting gig and work no more than 20 hours a week. well too bad the kids are in elementary/middle school and soccer plans don't exactly square with hiking patagonia during the middle of the season. combine that with wifey having gotten used to a new benz SUV every 3y which was no problem on a VP/director salary, after all you moved to Charlotte! well unfortunately you still bought a $1mm house in south park on an ARM (you convinced yourself you're more interest rate savvy than the bank and by the time it resets you'll downsize anyway). that, and the fact that it's taken 60-90 hour weeks for the past 12 years to get to this point in the first place, so in addition to $5mm in the bank you're looking at a dad bod that isn't quite in enough shape to make up for lost time while keeping your marriage and family intact.

you tell yourself "I've got a lot of deferrals coming, I'm pretty confident I'll make SVP in a year or two, and I'll be ready to hang it up by 50, and I'll take my health more seriously." fast forward 10y, you still pay for the gym but have been an average of 10x a quarter for the past decade and instead of good bloodwork now you've just got some fitness accounts you follow on instagram and some 5yo running shoes that still look brand new, you've got $10mm in the bank and the kids are off to college. you've not noticed a big difference in the lifestyle since you were 40, and somehow you feel robbed. maybe if you just got to $25-30mm it'll click. welp, you may cash out of your options just fine, but at 55 your wife has no purpose in life (she thinks), and since she's paid attention to the kids while you've been at work, you don't have much of a marriage anymore. so yeah, you're back to $5mm and have to stay on not for career ambitions, but for alimony.

all of the above can be avoided by living with intentionality and using second level thinking. also, DONT FUCKING WAIT TO HAVE FUN, TOMORROW IS NOT GUARANTEED

Nov 15, 2021 - 8:32pm

Thanks brofessor. Your comment is so good that I just bought the book that you recommend.

Array

Nov 15, 2021 - 9:36am

It's called moral hazard.  I have a friend who makes well into the 6-figures and still has not paid off his low interest student loan. Inflation is slowly eating it away, plus he has a free call option in case the government ever pays it off.

  • Analyst 1 in IB - Cov
Nov 15, 2021 - 9:55am

I had decent savings/investments leaving college because of cheap school+getting lucky trading some internship money. I know if I ever lost my job or completely hate it, I'd be completely fine financially for a while if I had to get by. That safety net makes living life much easier and less stressful which most people can't say.

Nov 15, 2021 - 10:19am

Speaking of people somehow living way beyond their means, I'm reminded of my childhood. I had a few friends whose parents were bankrupted, but somehow managed to maintain very extravagant lives.

One was the GM of a property fund that went belly up in '08, amid all kinds of fraud and dodgy accounting claims. Retail investors lost a shit tonne of money, many their savings for retirement. He ended up being saddled with the mortgages for several worthless properties and personally bankrupted. Somehow he was still living in mansions, going on holidays, driving a revolving door of luxury cars (started with Audis, went through a Ferrari and a Masarati in the time I knew them). My friends were always so jealous of his son because he had two TVs, a Playstation and an Xbox in his bedroom growing up. 

The other had his own construction company, which was going down the tubes for years before it eventually failed and he was personally bankrupted. I still remember waking up early one day to get water and seeing an aggressive "Income tax past due" statement on their kitchen counter. Again, lived in a massive mansion, had an equally nice vacation home, Audis, rebuilt a classic car, fancy holidays etc. Even after being bankrupted still somehow manage to keep up the lifestyle, although the vacation home sadly went (sucked for me, had some great memories at that place). 

My guess is they somehow just managed to continuously roll over their debt and find new lines of credit, and were comfortable living with creditors breathing down their necks 24/7. 

Nov 15, 2021 - 8:40pm

maybe they siphoned some money out of their companies before they went bankrupt?

Array

Nov 15, 2021 - 2:25pm

It's a simple term called "compounding" - over time, money saved today will be worth a lot more.

As to whether it's worth it for you to not go out with your friends now, so you'll have a bigger bank account/investment portfolio in 30 years... well, that's a value call and you're the only one who can make it.  Obviously there is some happy medium between "max out every credit card and have no savings" and "sit at home counting spare change all the time."  But it's gonna be up to you what that is.

Also, maybe your friends don't want kids or a family in general.  That's a personal choice, but you certainly can live larger, on less, if you're not supporting several other human beings.  Maybe your friends have family money to fall back on.  

Nov 15, 2021 - 3:11pm

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Nov 15, 2021 - 9:39pm

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