The Father's Day splurge ... and when it's O. K. to indulge

By Michael Matty, CFA, CFP, Chief Investment Officer, St. Germain Investment Management Special to PRIME In most instances, financial advisors focus on ways to save more efficiently, to get your finances in order, to plan for estate tax issues as well as a variety of things that you may not have thought about. But, this month, in honor of Father's Day, we are taking a different twist on financial planning ... prudently SPENDING your money. What About That Little Splurge...? Perhaps you've hit a stage in life where you want a new motorcycle, the proverbial red convertible, or maybe even a vacation home. Most people have the desire for such an indulgence, but don't know whether they should splurge on it. The good news is that your insurance on that red convertible will be a lot less expensive than it would have been when you were sixteen. The bad news is that you are now much closer to retirement, needing to finance orthodontic work for the kids, your children's college tuition bills, paying down your mortgage, and a whole host of other financial needs. Financial planning was sure a lot easier when you were sixteen, when financial planning meant making sure you had gas money! Getting your just rewards But you work hard, save your money, and feel that you deserve some reward. Can you afford it? If you are on track, and your finances can handle it, we counsel clients that there is nothing wrong with such a planned purchase. Please note the capitalized "IF" in this sentence. This is because there are many other priorities that come before a leasing a red convertible. #1 Set aside emergency reserves First, make sure that you have sufficient emergency reserves set aside. By this, we mean enough to handle the potential loss of a job for a few months, as well as enough to fix the furnace, roof and car if they should happen to need repair at the same time. You do not want to be forced into an emergency liquidation of assets to cover these expenses. #2 - Get a handle on your current situation Next, make an honest assessment of your financial situation. Get a handle on your current assets, as well as your income and savings rates. Are you saving as much as you are able to in your 401k? Putting money aside in addition to your qualified plans? Think about major upcoming expenditures such as college, as well as other major items. What about retirement? Are you well on track? At your current rate of savings, will you have enough to live on for 30-40 years? Is your mortgage debt at a reasonable level? Often such an assessment will require that you schedule a meeting with a financial advisor. We plan retirements every day-but you only do it once a year or even once every few years. Sitting down and getting an independent, objective opinion, a hard look at your goals, and an appraisal of your current situation is the best way to plan for your purchase. Live a little! Assuming you have done a realistic look, and are in good shape, why not spend some of your money on such an indulgence? Believe it or not, some people are over-savers. We see clients who come in, have lived frugally, and have saved impressive amounts of money; other than the security that it bought them, however, they never seem to have actually enjoyed any of it. In fact, now that they are getting older, their concern turns over to getting the money out of their estate. There is nothing wrong with living a little, as long as it is in your means. Column provided to PRIME by: St. Germain Investment Management; 1500 Main Street; Springfield, MA 01115 Phone is 413-733-5111 or 800-443-7624 www.djstgermain.com.