The Problem with ‘Living for Today’ With Your Money
Yesterday, I was up on top of my garage roof removing some of the cables from our winter decorations. I could have fallen off the roof and died.
Today, when I ate breakfast, there was a chance I could have choked on a bite of my scrambled eggs and died.
Tomorrow, I could get nailed by a runaway school bus – multiple bus routes run by our house – and die.
Given that money really has no use to me after I die – after all, I can’t use it – and given that there is a pervasive risk of dying, why should I save for the future?
It’s a question that has run through my mind many times, particularly when I was choosing to give up on things that I wanted in order to build a stronger financial future for myself and my family.
In fact, it’s a case that I sometimes have to completely re-make for myself in my own head. Why am I doing this? I could die tomorrow, so why not make the choices that are the most fun today?
As that thought came up pretty strongly in my head a few days ago – and then was yet again carefully deconstructed by me – I thought it might make sense to turn it into an article. I know from the messages I’ve received from readers and items on messageboards I’ve seen over the years that I’m not alone in having similar thoughts.
Step by step, here’s how I make that case.
1. The Odds Are Greatly Against Dying Soon
It’s really easy to visualize a lot of ways in which we might die. You could die in an automobile accident or a plane accident. You could die in a lightning storm or a terrorist attack. You could die of cancer or a heart attack.
The truth, however, is much different than you might expect. It turns out that your odds of dying this year are actually really slim. If you look at the actual data tables that back up that article, it turns out that the odds of actually dying this year are really low. For a man my age, it’s about 0.16%.
In other words, there’s a 99.84% chance I’m going to be alive a year from now. There’s a 99% chance I’m going to live to age 42, and somewhere around a 95% chance I’m going to live to age 50. There’s somewhere around a 82% chance that I’m going to live to age 65.
In other words, the odds are extremely in my favor that I’m going to live quite a while longer, and each day that passes actually increases the odds that I’m going to make it to a given age (say, age 65).
I like to view reckless spending today as a bet that I won’t be around in the future — and it is a really, really bad bet to bet that I’m going to die in the near future. Period.
2. The Cost of the Bet Is Really Big
Let’s stick with that bet analogy.
Blowing $100 right now on something you don’t really need because you don’t think you’ll live for tomorrow and would rather live for today is essentially a $100 bet that you won’t live for long.
(Note that I’m not saying that you shouldn’t spend money, have fun, and be spontaneous. Doing that at least a little bit is a very good thing – enjoying life is a pretty important “want.” I’m simply saying that there’s a point where it becomes pretty frivolous and you’re throwing money at pretty narrow “wants” today and hurting more important wants and needs down the road because of it. That’s the “bet” – that today’s minor wants trump the bigger wants and needs in the future because you won’t live that long. If you’d like some more thoughts on this idea, I suggest looking at the fulfillment curve.)
Let’s say that I spend an extra $100 (beyond my monthly “allowance” for spending on hobbies) buying a few board games that I really don’t play that often. I already have a big collection, so those extra games are pretty frivolous, especially when that money is coming outside of my “allowance.”
That’s effectively a $100 bet that I won’t need or be able to use this money better down the road.
I’m pretty close to 35 now – close enough for back-of-the-envelope calculations. Let’s say that I will have a much better use for that money at age 65.
Well, I have an 82% chance of living until age 65. It gets worse, though. By spending that $100 now, I’m foregoing what I could get in investment returns over that period. Assuming a 7% annual return, that $100 turns into $761.22.
So, let’s look at that bet again. I could spend $100 right now on something completely frivolous. I have an 18% chance of dying before age 65, which would mean that it was theoretically better for me to spend it right now. Or, I could choose to invest it. I have an 82% chance of living to age 65 and having $761.22 in my retirement account. Not only that, I would be spending that $761.22 on something better/more important.
When you start thinking of things in this way, you don’t have to go very far down your list of “wants” before further spending begins to look like a pretty bad bet.
3. I’m Much More Equipped to Handle Problems Now Than in the Future
I like to call this the “future me” problem.
Right now, I’m pretty well equipped to handle problems in my life. If needed, I have the health and mental acuity to work really hard to earn additional income and to do things for myself.
It is really easy to visualize myself as always being as capable of handling my life’s problems, but the truth is that I won’t always be as capable. There’s some chance that illness or injury could derail me in the future, and then there’s the simple factor of normal aging.
The truth is that I won’t be quite as capable of doing everything I want to do at age 65 compared to right now, and there’s a chance my capacities could be significantly lower.
In other words, it is much easier to earn a dollar right now and save it, and so it will be much more useful to have a dollar in the bank when I’m older and not necessarily as well equipped to earn that dollar.
This actually further amplifies the “bet” described above. Not only does the $100 spent frivolously now actually cost me $761 in thirty years, each dollar I have in thirty years is actually more useful to me then than a dollar is useful to me right now.
The truth is that my “future me” really isn’t as reliable as I like to tell myself. When I’m trying to talk myself into making frivolous purchases instead of saving, I tend to way overestimate how reliable I’ll be in the future and way underestimate how big of an impact saving that money will have on my future self. The truth? I can handle that savings now. I probably won’t in the future.
I need to be strong for my future self, because my future self probably won’t be able to be strong for me.
4. Even If I Do Die Tomorrow, My Wife and Kids Could Really Use That Money
This leaves us with one final question: what if I still die anyway? It might be a very smart bet to put that money away for the future instead of spending it on something frivolous today, but that doesn’t guarantee that I’ll live for many, many more years. The odds are extremely in favor of it, but odds are still odds. The less likely event can still happen.
In that case, I can’t help but look at what will be left behind for the people and the causes I care about most in my life. I care about my wife. I care about my kids. I care about the community organizations I participate in.
What becomes of those things if I die tomorrow?
Like it or not, my wife and children will have at least some financial difficulty. As I’ve mentioned, we live (more or less) off of Sarah’s income right now, so it won’t have an immediate negative impact on their life, but their ability to save for the future will practically vanish. Things will become very tight very quickly.
Every dollar I put in the bank right now will make that life without me easier for them. They will be able to still go on vacations. My children will still have plenty of college savings. They’ll be able to continue to have a joyful and stress-free life (at least, as much as possible while dealing with the death of their father).
In other words, leaving money behind really isn’t much of a “cost,” either. Would I rather have this relatively frivolous $100 thing? Or would I rather my family be able to spend a day at Six Flags together after my death where they could smile and laugh together again?
I know what I would choose.
What about people without close family? In that situation, this part of the equation isn’t nearly as strong, but it does mean that you can leave resources behind for whatever people and causes you care about. You may not need those resources any more, but you can leave behind a valuable seed for the things you care most about if the odds of life don’t go your way.
Taken all together, these things provide a very powerful motivation for me to not spend money frivolously today and instead save it for the future.
That doesn’t mean that I never spend money frivolously, of course. As I mentioned above, there is great value in being spontaneous and enjoying some fun things, but there comes a point where the value of additional spending on pure “fun” gives you diminishing returns (again, check out the fulfillment curve for more thoughts on this).
When you start to reach that point, the value of saving begins to really trump the value of spending, and false motivations like “living for today because there might not be a tomorrow” begin to really hinder you.
Toss ideas like “living for today because there might not be a tomorrow” out with the trash. When you look deeper at ideas like that, they guide you down a path that’s filled with little lasting joy and a harder long-term life.