How to balance spending now and save for later

There’s a new trend on TikTok that involves people encouraging their viewers to spend all their money on traveling and having memorable, life-changing experiences, especially when they’re younger. While previous generations may have felt pressure to spend money on expensive cars and clothes because of their neighbors and peers, Gen Z and Millennials may be tempted to spend more because social media influencers and celebrities.

The popular “I’ll get the money back, but I’ll never be in my twenties to travel to [insert exotic location]”Trending features videos of young people embarking on great adventures around the world – swimming in the Mediterranean, riding scooters through the streets of Paris, climbing volcanoes in Guatemala and, as seen in the video below, running through flower fields in Iceland.

travel blogger Isabelle Lieblein think it’s better to make the trip. During her last semester in college, Lieblein studied abroad in Germany before starting her full-time job. While abroad, she dipped into her savings and visited 19 countries, including two of her favourites, Norway and Poland.

“I will never have so few responsibilities again and I will be able to travel like this,” says Lieblein. “When will I be able to go to Luxembourg [just] Because I can? So I decided to spend this money [and] I barely left myself enough for two months’ rent until I got my first paycheck.”

With this first salary, Lieblein ended up recouping the money she had spent on travelling. However, Lieblein acknowledges the privilege she had of being able to make the trip to Europe and have a job planned for her return home.

Although Lieblein has no regrets about how she spent her money, Vivian Tu, the personal finance content creator behind the popular Your Rich Instagram BFF and TikTok Accountbelieves this trend is problematic, primarily because social media itself encourages a fear-of-missing mentality.

“Instead of following the Joneses, you follow the Kardashians, and suddenly all this unimaginable wealth is visually ready to be consumed on social media,” Tu said. “And so suddenly you think it’s normal for a 20-year-old to go on a road trip six times a year.”

According to a 2019 Credit Karma Surveyalmost 50% of millennials said they spent money they didn’t have to keep up with their friends – most would have spent too much on food, clothes and travel.

What to watch out for when overspending

Overspending doesn’t just have short-term consequences, you also sacrifice savings for something else that is arguably more important over time. For example, when you give up saving for your retirement in the present, your future self loses compound interest.

Priya Malani, Founder and CEO of Hide the wealtha financial planning company focused on millennials, tells Select that there’s a significant difference in the amount of savings it sees from those of its clients who started saving when they were young compared to those who started later in life.

Let’s break this down using real numbers. Suppose you want to save $1 million by age 65; you would need to invest $530 per month for 40 years starting at age 25 (assuming a 6% annual return). If, however, you waited another ten years to start investing, at age 35 you would have to invest $1,050 per month for 30 years to end up with $1 million (again, assuming a 6% annual return). . This means that your monthly investment should be nearly double the amount if you waited 10 years to start investing.

Overspending can also be costly if you use a credit card to fund your trip and don’t pay your bill each month. Latest data from the Federal Reserve shows that the average APR for interest-paying credit cardholders (i.e. those who don’t pay off their balance in full) is 16.65%.

When you find yourself spending more than usual just because your friends are, Tu recommends offering a more affordable option. “It’s important to offer an alternative so that it’s clear to people that you want to hang out with them as much as they want to hang out with you,” Tu explains. “You just can’t do this activity.”

If someone in your party wants to go to an expensive restaurant, you can suggest affordable alternatives like getting takeout or cooking at home together so you don’t have to give up hanging out with your friends to save money. the money.

It’s easy to feel tempted to spend money doing things with friends — or to want to travel because we’re inundated with images of other people on vacation. Your best bet is to first establish a budget based on your personal values. Creating a budget is about making trade-offs, so spending more in some categories means spending less in others. For example, if you prioritize travel, you might forego dining with friends to save for a flight to Maui.

Malani thinks it’s possible to spend money on experiences while you’re young and simultaneously prioritize your financial future.

“If you want to balance experiences while pursuing long-term financial goals like retirement or buying a house, then balance them,” she says. “Spend money on everyone, even if it means national rather than international holidays. If you want to be able to do both, sacrifice on both so you can achieve that balance without overstretching yourself.”

People can try to find more affordable ways to travel so they don’t sacrifice their emergency fund or retirement savings, Tu says, which could mean using credit card points or airline miles to fund trips. in hotels and flights, in addition to opting for cheaper and closer vacations. destinations.

This is where travel rewards credit cards can come in handy — many of them have low or no annual fees, come with generous welcome bonuses, and include plenty of travel-related perks. Note, however, that these types of cards generally require applicants to have good or excellent credit to be approved.

For example, the Capital One Venture Rewards credit card has a $95 annual fee and allows you to earn 2X miles on all qualifying purchases. New cardholders can also earn 75,000 bonus miles after spending $4,000 within the first three months of opening an account.

Although the redemption value of Capital One miles varies, if you book travel directly through the Capital One Travel portal, one mile will be worth one cent for airfare, hotel and other redemption rewards. This means that you will get at least $750 worth of trips from the welcome bonus alone. And those who know who to maximize their points by transferring them to the right partner (airline or hotel) can double or triple the value of their redemptions.

Another popular travel rewards option is the Chase Sapphire Preferred® Cardwhich has an annual fee of $95 as well as a welcome offer of 60,000 bonus points when new cardholders spend $4,000 within the first three months of joining the account.

When you use this card, the cash value ends up being 1.25 cents per point if redeemed through Chase Ultimate Rewards®, which means your welcome bonus can be worth up to $750 in flights, hotels and other travel expenses.

If you prefer a travel rewards card with no annual fee, the Discover it® Miles lets you earn 1.5 times the miles on all qualifying purchases (Discover miles are worth 1 cent per point). The card also comes with a unique welcome bonus: Discover matches all the miles you earn in the first year, so if you finish with 20,000 miles, you’ll get an additional 20,000 miles as a welcome bonus.

We know it’s tempting, but before you sign up for one of these credit cards – especially if the lucrative welcome bonus is your main motivation – make sure you’ll be able to pay off your balance each month at time and in full to avoid paying late fees and high interest. The cost of these charges will exceed the value of any points or miles you may receive.

Also, don’t apply for too many cards at once, as each application submitted will cause your credit score to drop temporarily, although ultimately a new credit card can help boost your score in the long run when it is managed responsibly.

Finally, make sure you sign up for a credit card that matches your usual spending habits. And if you don’t think you can spend (and repay) the minimum amount required within the time limit to earn a welcome bonus, that’s not a good idea.

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