(This article is a continuation of my previous article, the paradox of advice. I pointed out that after working with Fairhaven Wealth, many people are likely to end up with less financial wealth over the long run — once they start to consider what “wealth” means to them from a broader perspective.)
My wife Chrissy and I have a personal joke.
Quite often we spend more money on things than we strictly need to spend. At the insistence of our children, we might spend an extra $10 or $20 when we go to a cafe. We might spend a little more on holidays than we need. We pay for a cleaner and babysitters, so we have more time and energy to focus on other things in life we care about.
When we do these things, we rationalise it by saying: “it’s coming out of the kids’ inheritance!”.
We say it as a joke, but it’s strictly true: in the absence of major bad luck, we’re going to be fine financially. We may not be “financially independent” at the moment. But we’ve both worked hard to be secure in careers we enjoy, and are confident in our ability to generate income. We’re managing the major risks that we’re exposed to (for example, by having appropriate personal insurance in case one of us dies or is unable to work). You never know, but something would have to go seriously wrong for us to end up in a bad financial situation.
Whether we spend an extra $10 or $20 at a cafe, or an extra couple of thousand dollars on holidays in a given year while the kids are young, isn’t likely to move the needle in terms of whether we’re likely to have a comfortable retirement.
The most likely scenario is that spending this money will mean our children will end up inheriting less from us if and when we die (and perhaps leaving less for some of the causes and other people we care about).
This raises an interesting question: what sort of inheritance do you want to leave your children?
As I’ve written about before, it’s easy to think of inheritance in terms of how much you leave when you die.
But inheritance is more than that: if you’re lucky, you inherit good memories, experiences, values, and a sense of belonging from your family.
One of my clients explained that she would rather “give with a warm hand” than “give with a cold hand”. I love that description.
At the end of the day, you’re making a choice about what you’ll leave your children, and how you’ll do it. For us, we’d rather enjoy our time when they’re young, and do things with them. This involves spending money, and it also involves generating less money (by working less while they’re young).
This is part of a bigger, a perennial question. Sometimes it’s better to spend now than wait for an uncertain future.
The answer is personal to you. But asking the right questions is a good place to start!