On the flip side, I’m on track to have a fully funded retirement when I am ready to retire. Why forgo a pleasure now to have more money than I need in the future?
I tend to agree. Believe it or not, it’s okay to spend money. And yes, this is true even if we’re just talking about wants as opposed to needs.
The key is to strike a balance, and to be mindful of these decisions. If you’re on track to hit your savings targets over your desired timeframe, then you officially have my permission to go spend money.
What Edward is really hinting at is an economic concept known as consumption smoothing, which involves balancing your saving and spending throughout your life to maintain an even (and as high as possible) standard of living over time.
If the case of the former, you’ll live an overly austere life in the early years only to wind up with more wealth than needed later in life. Not a terrible problem, but you could’ve loosened up and enjoyed yourself more along the way.
If the case of the latter (which I think is a more common problem), you’ll have an artificially high standard of living in the early years at the expense of your golden years. The end result will be delayed retirement and/or a greatly reduced standard of living late in life.
As attractive as this idea (i.e., consumption smoothing) sounds, it’s easier said than done. Figuring out exactly how much you need to save (or can spend) across different life stages is a very complex endeavor. And the stakes are quite high.
Related: Scott Burns has a good (if dated) book on the topic.
In my view, this is a potentially useful concept, but one that should be approached with caution. I say this because it’s all too easy to use the consumption smoothing worldview to postpone saving until some distant day in the future.
Yes, you’ll be able to save more money once the kids are on their own, but you’ll also have missed out on years (and years!) of compounding. Maybe it’s better to aim high and then just bail out earlier if you end up overshooting the goal.