Sunday, May 27, 2012

Living Check to Check: Enjoy Today or Save for Tomorrow?

You might have heard about this recent Canadian law school/MBA grad last week who paid off his $114,000 student loan bill all at once IN CASH.  How did he do it?  He started a venture capital firm, of course.  But that's not the point here.  The point, rather, is that this guy just graduated with a JD/MBA in 2009 and 3 years later he is completely debt free.  When those of us at The Urban Politico first heard about this it sparked an internal debate that metamorphosed into one salient question:

When you DON'T have unlimited venture capital money like the rest of us mere mortals (in other words, when you're basically living check to check like most Americans), do you (A) save all your money for the future or (B) spend all of your money to enjoy life today while you're still (relatively) young?  We explore this debate after the jump.


First things first, the question is purposely misleading because, as you may have noticed, option (A) and option (B) are not mutually exclusive.   It is possible to both save money and go out and enjoy life.  However, these two doctrines will invariably come into conflict at some point in your life down the road.  Perhaps even at multiple points in your life.  When that happens, which do you choose?  What is your default?

Imagine that an old college buddy who you haven't seen in years is visiting your town at one of your favorite bars for one night and one night only, but you've already spent all of your money for the month...all of your money, that is, except for what you normally put away for savings each month.  What do you do?  Do you tell your buddy:

A: "Hey man, sorry, I don't think I can make it because I don't want to dip into my savings. Catch you in another 10 years. Maybe"?

or

B: "Hey man, I'm there! See ya in 10 minutes." and then worry about how much the evening is going to set you back the entire time you're buying drinks at the bar?

Here's another scenario.  Imagine that a group of your best friends and/or your favorite family members are planning a vacation at a place that all of you have been talking about visiting for as long as you've all known each other.  You've always wanted to go and now the opportunity is finally at hand.  Everybody's in...except for you.  You're on the fence because after looking at the numbers you realize that the trip will cost you an amount equivalent to at least one month's take home (and possibly two).  So if you go, not only will you be sacrificing any monthly savings for a while, but you're also going to be cutting into your monthly budget for basic living expenses like gas, food, etc.  Do you :

A: Sit this one out and wait to see everybody else's pics on facebook for free?

or

B: Go establish a rare memory among friends/family that will be talked about by everyone for years to come but struggle financially for the next few months?

The answers to these questions tend to turn on not only your priorities in life but also your life goals/dreams.  If you are trying to save up for your kid's college fund, for example, you might be the type of person who skips out on the extravagant get together with all of your old friends.  On the other hand, if you've ever lost a friend or a loved one before then you may subscribe to the philosophy that life is too short to let opportunities pass us by.  If you're the type of person who is forward thinking, then you may tend to lean towards saving your money today for a brighter future tomorrow.  Conversely, if you're the type of person who lives in the moment, you may tend to lean towards spending your money today and worrying about tomorrow when it gets here.  It's all subjective. 

The "America Dream" seems to be predicated upon a mentality of sacrificing the opportunities of today -- as attractive as they may be -- in order to save money for your future tomorrow.  And for all intents and purposes, this is generally considered by most to be the smart move.  However, the lesson that we as a post-2008-recession society are slowing starting to draw from scenarios like the Canadian venture capitalist above, the tea party, and the occupy Wall Street crowd is that this whole "save for tomorrow" mantra that we've been fed since birth is starting to look less and less like the smart move and more and more like the sucker move.

I see all this potential, and I see it squandered. God damn it, an entire generation pumping gas, waiting tables; slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don't need. We're the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War's a spiritual war... our Great Depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars. But we won't. And we're slowly learning that fact. And we're very, very pissed off. - Tyler Durden, Fight Club (1999)

Take our Canadian friend above, for example.  When it comes to student loans, the "smart" move for tomorrow (and, for many of us, perhaps the only move?) would have been to diligently make all student loan payments each month and some day (approximately 30 years from now) he'll be debt free.  However, he didn't do that.  He wanted to be debt free TODAY, Jack.  The Business Insider reports that the bank that gave him his student loan initially would not accept his lump sum payment of $114,000.  (Let me get this straight...I'm here to give YOU MY money that YOU say I owe YOU and YOU don't want to take it???)  Eventually, they took the lump sum payment but it just goes to show that the system is not set up to encourage you to enjoy life in the here and now.  Rather, the system is designed so that you live frugally during the majority of your life and then maybe -- just maybe -- after a lifetime of savings and living below your means you can reap the rewards of your financial sacrifices at the prime age of 70.  [Editor's Note: by the way, it is notable to observe that a student loan of $114,000 paid off over your average 30-year term at your average 6.8% interest rate actually becomes $267,553.96 by the time you make the final payment 30 years from now. In other words, by dropping cash on these fools today, he just saved himself over $153,000!!!  Not bad, Canadian Venture Capital Dude.  Not bad at all!]

Nevertheless, as we acknowledged at the outset, most of us do not have venture capital money.  For most of us, we have jobs that we work from 9 to 5 for a monthly or bi-weekly paycheck which, after taxes, is hopefully enough to keep the lights on and leave us with a little bit extra after all is said and done.  So when it comes to (A) saving for tomorrow or (B) living for today, that presents a pretty tough choice for most people.  


So what do you choose? 

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