On a rainy Saturday afternoon, about 100 people gathered at Carolina Missionary Baptist Church in Maryland to get advice about their finances.
I was challenging them to really think about the financial decisions they have made and will make. Finally, one of the participants asked me a question that is, I believe, at the core of why so many people end up in financial trouble.
“OK, so when can you spend money on something you want?”
Heads nodded throughout the sanctuary in solidarity to the sentiment. I could see that people, despite their commitment to become better money managers, were concerned it would take too long before they could do fun things with their money if they stuck to the financial plan I was laying out for them. I’ll tell you how I answered, but first I want to take a little detour.
I was still thinking about the man’s question — one I get all the time — on the way home from the event. On the radio, a news anchor started talking about recent survey results from The Knot, which for the last eight years has shocked many a penny-pincher with its annual study of what couples spend to get married. The Knot — the wedding brand of XO Group Inc. — received input from 16,000 female members of TheKnot.com website who got married last year.
The average wedding, not including the honeymoon, cost $31,213. The average amount spent on a wedding dress was $1,357. Almost half went over their budget. Twenty-three percent didn’t even have a budget.
There’s always gasping when The Knot comes out with its wedding survey. I certainly roll my eyes. Still, even if I think spending $31,000 on a wedding is wasteful, if all your financial ducks are in a row, do what you like with your extra cash.
But if you can’t tick off the things I think are important to have established before you spend lavishly on what is really a party — the wedding reception is, after all, where the bulk of the money goes — you aren’t being prudent.
I’ve shared the following list before, but let’s go over it again, shall we? Before you send out the save-the-date cards for your nuptials or decide to spend on a new car, luxury goods, electronic toys or a vacation, you should be able to answer yes to the following questions.
• Are you living within your means? Spending sprees have to wait if every month you are scrambling to meet your basic necessities.
• Do you have an emergency fund? The goal should be six months’ worth of living expenses saved, but I’d be happy if you had even a single month’s worth.
• Do you have a life happens fund? This is different from your rainy day or emergency fund. It’s a pot of money you can tap regularly when there’s an unexpected expense that you can’t cover from your monthly budget, such as a major car repair. Having this fund prevents you from decimating your emergency fund, which should be reserved for dire situations like a job loss.
• Are you saving for retirement? Specifically, have you figured out how much you need to save every month so that you will have a better chance of having enough financial resources in retirement?
• Have you paid off all your credit cards?
• Have you paid off all your student loans?
• If you have children, are you putting money — anything you can spare — to help pay for their college education?
There you have it. Is it a challenging list? For many it is. Still, the goals are worth striving for.
Now, let me get back to the man’s question.
The occasional small splurge is OK. But you are out of order if you can’t answer affirmatively to the questions and yet — out of a sense of entitlement — constantly go ahead with expenditures that fall into the “I want” category.
And if you can’t answer yes to the questions, you don’t impress me by saying you saved up for that $10,000, $20,000 or $31,000 wedding.
So. That money should have been directed to establishing a better financial foundation.
Some of you will think it’s preposterous to suggest people should wait to treat themselves until they have a savings cushion and are out of debt.
But me, I think it’s ludicrous, and risky, to live like you have it like that when you don’t.
