MARK RIEPE: I'm Mark Riepe, and I head up the Schwab Center for Financial Research, and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decision-making and the cognitive and emotional biases that can cloud our judgment.
In our financial lives, we often talk about long-term saving goals, and with good reason—they're important—and it takes a commitment to save up for them. The big one for most of us is saving for retirement. But there are others—for example, saving for the down payment on a home, or maybe even a second home, as well as college expenses.
But what about saving for things that don't have a long-term horizon but that are still pricey, like weddings, vacations, a car? What's the best way to save for those?
To help answer these questions, I'm going to talk with someone who has given us some great insights in the past—Cindy Scott. Cindy has been helping Schwab clients build personalized wealth management strategies that address topics including retirement planning, distribution and income strategies, education planning, risk management, and estate planning.
She has 25 years of experience and is a CERTIFIED FINANCIAL PLANNER™ certificant, a Chartered Financial Consultant®, and a Chartered Retirement Planning Counselor℠.
She's also one of our featured columnists on our Schwab Money Talk series. You can see her work at schwab.com/learn/money-talk, and again, you can see some of her great work there.
Cindy, welcome back to the show.
CINDY SCOTT: Thank you. Thank you for having me, Mark.
MARK: You know, we've done a lot of episodes about big things—you know, saving for retirement, buying a house, things like that. But when you actually talk to people about what are some of the things that they're worried about from a financial standpoint, a lot of times it's shorter-term goals, goals that are less-expensive things like vacations and things of that sort.
So how do these shorter-term, less-expensive goals—how do they fit in someone's overall financial plan?
CINDY: Yeah, that's a great question, Mark. I'm so glad you wanted to have this discussion today because as you can imagine, as financial planners, these are the types of conversations we're having every single week.
At Schwab, we believe it's important to prioritize financial goals in order of importance to that individual or that family. And this is especially important because for most people, our needs and desires exceed our limited financial resources. In other words, there's just not enough money to do everything we want to do. So we have to decide what's most important to us. What do we value most?
And then we have to commit to doing whatever it takes to achieve those things.
One of the ways we do this is by creating a financial plan based on your goals—long-term goals like saving for retirement and shorter-term goals like saving for vacation or a wedding or a down payment on a car or home or any other goal that has a shorter time horizon. Having a plan that incorporates short-term and long-term goals enables us to enjoy the good things in life today, while also preparing for the important things down the line tomorrow, like retirement or healthcare costs or providing a good education for our children.
So in short, to answer your question—shorter-term goals fit into a financial plan just like longer term goals. We have to remember to incorporate them into the overall financial plan.
MARK: I love the fact that you mentioned so many of those other types of short-term goals because you're exactly right. It's not just one or two. We're bombarded with a bunch of those.
And given that we're recording this during the summer—start of vacation season—one thing that's unique about vacations is that I think for a down payment for a home, you kind of have a sense as to how much that's going to cost. But when it comes to a vacation, people don't necessarily know how much that's going to cost because there's so many variables at play.
And so can you talk a little bit about some of the common mistakes that some of the people you've talked to, common mistakes they make about dealing with the fact that it's kind of a variable number, kind of a floating target, as to how much money they're going to need?
CINDY: Sure. The number one mistake, Mark, that I tend to see clients making with these shorter-term goals is really just a failure to plan. It can be hard, if not impossible, to determine precisely what something like a vacation is going to cost.
And so one of the mistakes I see people make is they'll say, "Well, we'll just put it on a credit card, pay for the trip with the attitude that we're just going to enjoy it. We deserved it. We've been working hard. We need this vacation. We're not going to hold back on spending, and we'll figure out how to pay for it later." Well now you do that several times for different short-term goals, and where do you ultimately find yourself? In debt.
So instead of taking that approach, which ultimately leads to an even more stressful situation later, I talk to clients about creating a vacation spending plan because much like saving for a 20% down payment on a home, that's pretty easy to target, right? Well, so many things about planning for a vacation, it's the same way.
So here's what I tell people. First of all, determine a target amount for what you want to spend or what you can afford to spend on the vacation—a target amount. And in addition to your target number, set a higher, kind of an absolute maximum spending amount, to account for variables that you won't accurately be able to predict—like the cost of food or additional excursions and activities that you might not learn about until you're on the trip.
But back to the 20% down payment—let me just kind of share some things that we can do to get a little bit more clarity on some of these goals with a lot of moving parts. Most people have access to the internet. So we can all do a little research ahead of time to create this spending plan for the vacation.
And when I say spending plan, it's just another word for budget. I don't like budget because, you know, it always conjures up for people something that's restrictive, and a spending plan seems to be easier for people to grasp because it frees them to spend this money. So OK—spending plan, budget, whatever you want to say.
You can plan for some of those larger-ticket items. If you're going to be driving somewhere on this trip, well, you'd know you probably need to get the car checked out. Does it need to be serviced? Do you need new tires before you put your family in it and put them on the road? You can get estimates for things like that. If you're booking a hotel or an Airbnb, you can get quotes for that, whatever your accommodations will be.
If you know there are specific activities, excursions, or concerts or other things you want to enjoy on the trip, you can get a pretty good quote for things like that. Pricing things for meals, money for tips—so all of those are some of the higher expense items that we can get clarity around.
And then we can create some additional spending budget for incidentals and unexpected expenses that you will inevitably encounter when you're working toward any goal.
So again, going back to my recommendation for people is find out what the big-ticket items are going to cost, and then budget in additional money for the vacation for all the incidentals and the unexpected expenses that are going to come up. This way, you're not caught by surprise. You're not starting to accumulate debt that you didn't anticipate accumulating. Just plan for it on the front end. Things will always cost a little bit more.
So—and here's another thing—I work with a few clients who only take all-inclusive vacations as a way to contain their spending for vacations. OK, so taking the time to disconnect from work and enjoy a getaway is important to them, but they also have other important priorities they're working towards, and they don't want the vacation to break the bank, so to speak, and derail their other goals.
So this is one way they can enjoy the getaway without overspending on it, because even for all-inclusive, you might still need some slush money, some fun money for things you didn't particularly plan for.
MARK: Well, what I really like about that answer is, yes, there's uncertainty, but take control of the situation like you take control of all other aspects of your life and resolve that uncertainty. It's not an unsolvable problem, and then just start laying out all the different alternatives and start thinking about them.
So how do you go about doing that though? It's one thing to kind of prioritize on vacation. How do you do that with all your other short-term goals—some of the ones that you mentioned before—how do you start ranking those in terms of importance?
CINDY: So you said the key word there, Mark, and it is simply to prioritize. As I mentioned earlier, there will probably always be more desires than there is money to fund those desires. And so we have to make some trade-offs.
One of the ways that we coach people for how to do that is to make a list of all of your short-term goals, all of your long-term goals, mid-term goals, and then come back and sort them into three priority categories—needs, wants, and wishes. The names kind of are self-explanatory.
Needs are necessities. At some point, if you don't plan to work all your life, you're going to want to retire. Social Security and your pension may not be enough to cover all of your expenses. And so you're going to need to plan for additional expenses during retirement by having an investment in a retirement portfolio.
Wants are things that bring a sense of joy and significance and meaning to our lives. We want to plan for these things. This includes the vacations or being able to send your kids on a senior trip or sending them to college, you know, some of those things. We want to plan for those.
And then wishes—well, they're somewhat discretionary. Wishes are things where you say, "I'd love to be able to do 'fill in the blank'—'ABC.' But I realize we may not have enough money to fund everything we want to do." So if we have to reduce what is available for a wish and in some cases eliminate that, well, then, you know you've still met your needs, and a lot of your wants have also been funded. And so that's the first thing I would recommend people do for both long and short term—prioritize them based on their level of importance as a need, a want, or a wish.
MARK: One of the things I like about when you describe the needs, wants, and wishes—it's not as if those things are static, right? Things can move from category to category as your life changes, right?
CINDY: That's right. So what may be a want today may be a need at some point in the future or vice versa. Or maybe it's a wish today, and as you grow and live life and get to some of those more advanced stages closer to retirement, that item may drop completely off of your priority list. So that's right.
So one of the things I want to emphasize is we need to create a realistic plan to achieve what's most important to us. But we have to understand that the plan is not set in stone. It is a constantly changing and evolving process. It is not a product—it is not an end product where you get a 50-page document, and there's your plan.
A financial plan is an ever-changing, ever-evolving process so that as we change—as our desires, our preferences, our life stages, our health, and other things change in our lives—we need the flexibility to change our plan so that it's always current with our present situation in life.
MARK: Yeah, I was wondering if you could talk a little bit about how that stage of life determines how you're going to set those priorities. What are your thoughts there?
CINDY: Yeah, the stage of life is just that. Let's take somebody 20s, 30s, maybe they're graduating from college. They may have some student debt. They may not. They may not have a home yet, may not be married, may not have children.
For a person like that, their priorities, especially for the shorter term, is probably going to be more to the "enjoying life" side of it. So they're going to be going to the concerts, taking the trips, backpacking. And you know, sometimes that's what you want to do is plan some of your goals based on what life stage you're in.
I can't imagine if I'm 80 years old trying to take a backpacking trip across Europe or somewhere, right? But if I'm more young and energetic and stronger physically, that's something I may do in my 20s or 30s. In my 20s or 30s, I may not try to save for a 40 or $50,000 trip, right?
But some of the retired clients that I work with, they have those resources. They want to take the trip where they can pay for their adult children and grandchildren as an all-inclusive trip for them. This is one of the things that's more of a high-level want for them. They want to be able to treat their family to this type of trip.
And guess what? Once they've been saving for 20, 30, 40 years for it, they have the money to take those kinds of trips, whereas someone just getting started in life may not be able to take a trip like that.
So we do need to consider the stage of life and really just what's important to you at whatever stage you're in. That's what we will build your plan around, knowing that that plan is likely going to change over time.
MARK: I'll get back to my interview with Cindy Scott in a few minutes, but first I want to share some of the psychology behind vacations and how to save for them and other goals that have intermediate timelines.
You may have heard of the cognitive trick called mental accounting[1], which can play a big part in this kind of saving. Mental accounting describes how we treat money differently depending on factors like where it came from and what we're using it for. We create different accounts in our heads for different activities.
The truth is money is interchangeable no matter in which mental account we place it. A classical economist would call it fungible. But we sometimes track our expenses and assign them to categories like food, entertainment, and clothing.
The money doesn't change. But we assign a purpose to it, and sometimes that purpose causes us to change the value that we assign to it. It's like when we get a tax refund and happily spend it on a splurge. We treat it as free money to be used for a luxury or indulgence, but we'd never do that with money from our normal paycheck. It’s the same when gamblers are willing to risk more when they're playing with so-called house money.[2]
In a vacation context, think about souvenirs. Have you ever bought something while on vacation and paid way more than it was worth because you were caught up in the giddiness of the holiday? Perhaps like me, your refrigerator is covered with magnets or your dresser filled with expensive t-shirts with forgettable slogans from different locations.
This might be related to mental accounting. Since we have earmarked money to spend while we travel, we might even be looking for an excuse to spend. Let's face it, you're on vacation, your defenses are down, and no one's guarding your financial cookie jar to save you from yourself. Spending on souvenirs is fine if you've budgeted for it. But be aware of how much you're spending while you're doing it.
Before we get back to Cindy, one of the Financial Decoder team asked herself: "When did Americans start to vacation?"
It was the spring of 1869, when a book called Adventures in the Wilderness; or, Camp-Life in the Adirondacks by the Boston preacher William H.H. Murray was published.[3] Murray claimed that hiking, canoeing, and fishing in the great outdoors was a health tonic for city dwellers. Even better, thanks to a new train line, this paradise was only a 36-hour train trip from New York or Boston. Before then, this type of excursion was called a "holiday" following the British usage.
The term "vacation" entered the lexicon as the upper crust of New York City declared that they would "vacate" their city homes for lakeside summer retreats.3
Enough history trivia. Let's get back to my conversation with Cindy and learn more about how to manage finances and vacations.
MARK: Cindy, one of the things you said earlier was some people, they just say, "You know, I'm going on vacation. I'm going to spend what I'm going to spend, and I'll figure out how to pay for it later." It seems to me that—I bet there's a high correlation between that mindset and credit card use. So talk to me a little bit about going into debt for some of these shorter-term goals.
CINDY: As you can imagine, Mark, as a financial planner, it is not necessarily a strategy that we would recommend, especially if you're already carrying debt. And if that's the case, you really need to be very, very careful about going into even more debt for something like a vacation or a concert or whatever it is you're wanting to accomplish—because like I said earlier, if you're already carrying debt and you continue to add to it, that debt is going to mount—interest rates, I hear from some clients, are almost 30%. That is going to be a burden at some point.
Now a credit card, I would say, is OK if you already have the cash set aside to pay the bill. So you've already planned for it. The money's already set aside. Most people are going to use a credit card for convenience, for protection.
They may not want to carry a lot of cash and maybe they have some points they want to use or accumulate. But if the money is not already set aside, then we need to start with step one and create a plan—a vacation spending plan—and start saving and setting aside money for that trip.
MARK: Something like 20% of 401(k) plan participants have a loan against their 401(k). And it wouldn't surprise me if some of those loans are for some of the expenditures we've been talking about. So what are your thoughts on that?
CINDY: Yes, that's a great point, Mark. I actually worked with a client a few years back who viewed his 401(k) plan as his way to fund his vacations each year. He would literally take out a 401(k) loan, pay it back, only to take another loan out for the next vacation.
And here's what I would say—it's rarely wise to raid your retirement savings, and it should be used as an absolute last resort, like when you are in dire financial straits. I don't necessarily recommend pulling out a 401(k) loan to finance a vacation because there are other ways we can do that. I would say use it as a last resort. There are some advantages and there are disadvantages to it, which is probably why people do it.
One of the advantages is lower borrowing costs. This is something I just looked up the other day. Our employer, the rate for us as employees if we were to take out a 401(k) loan is 9.5%, plus a loan establishment fee of $60.
Now you compare that to the interest rate from traditional lenders where we've seen to go up to 20+%. So if a loan is what you absolutely need, do you take a loan at 20% or one at 9.5%? And the good thing about the 401(k) loan, if there is one, is you are paying yourself that interest back, as opposed to that interest going to the lending institution. There's no credit impacts.
A 401(k) loan avoids taxes and penalties. There's no exhausting loan applications. You can pay it back with automatic deductions, etc. So I can see some advantages to a 401(k) loan, and I'm not 100% against it. I'm just saying we should not be in the habit of raiding long-term retirement savings to cover shorter-term goals. We should leverage that only if we have dire financial situations because there are some disadvantages.
For example, if you are inadvertently let go from the company, now you've got to pay all of that money back or you can be facing some stiff penalties and taxes. There's also a limit on what you can borrow. So whatever your vested account balance is, you're usually limited to borrowing about 50% of that amount. If somebody is in dire financial straits and they do file for bankruptcy, that 401(k) loan is not discharged. You still have to pay it back.
So there are alternatives to borrowing either from a credit card or 401(k) loan. And one of the best alternatives is simply to put a plan in place and start saving for it.
MARK: I'm looking at a list from survey participants talking about some of the things they save money for—vacations, cars, weddings are all on the list. And these are the sorts of things that I'm guessing you don't just like save for a vacation and then you take the vacation.
Then you start saving for the car. Then you take the car. Then the wedding. Things aren't sequential like that. People are probably saving for a bunch of these things simultaneously.
So how do you think about that? What sort of adjustments should somebody be thinking about to spread that kind of savings across all these items without kind of sacrificing the soundness of their longer-term things they're saving for—as well as, you know, having a nice emergency fund?
CINDY: So two words come to mind here—prioritization and trade-offs.
The first thing we need to do is prioritize what's most important. If we have a variety of short-term goals that we want to save for all at the same time, plus we also need to be saving for some of these longer-term goals, we have to figure out what's most important right now at this moment. Is purchasing a new home more important to you right now than taking a vacation or buying a car? Is it more important to have the wedding of your dreams over buying a home right now?
So once we've prioritized the goals, if there is not enough money to start funding each of those goals, plus the long-term goals, then we have to make some trade-offs. Is the car in good enough shape that we can drive it for another two or three years in order to save for the home, to save for the wedding, to take the vacation?
You see what I mean? So I can make a trade-off. I'm not saying we're not going to buy the car, but it's all going to come down to—what can the household budget afford? OK? The goals should align with a person's value given their stage of life. And if the wedding is the most important thing right now, that's fine. Let's put most of the money toward the wedding.
If the car is about to clunk out, well, we may now need to save less toward the wedding and maybe push the goal achievement out six months or a year in order to set some of that money aside to fund a car because the current one is about to go dead. So the plan needs to be realistic. You define some targets and you start saving.
But at some point, the wedding is going to happen, and the money that was being dedicated toward the wedding can now be focused on the next priority item, whether it's a vacation, the new car, the down payment on the home, etc. So we just need to prioritize and be willing to make some trade-offs if the monthly budget cannot support the funding of multiple goals simultaneously.
MARK: We always get questions from people about, you know, kind of rules of thumb for saving and investing and things of that sort. So any kind of rules of thumb as you kind of think about people in this situation?
CINDY: Yeah, the rules of thumbs are helpful as general guides, but what I would suggest is that people seek out a financial advisor that can give them a little bit more certainty and clarity on what they absolutely should be saving each month to achieve their specific goals.
And so, for example, the overall cost of whatever the item is and the amount of money set aside each month is going to determine how long it's going to take to fully fund the goal. It may only take a few months or it may take a couple of years.
So if you want the goal funded sooner—which a lot of people do once we go through this exercise—they're like, "Oh my gosh, I'm not going to be out of debt for three years. And it's going to take two and a half years to fully fund my six-month emergency reserve"—where there are some other things that people can consider.
One is earmarking windfalls to help accelerate the funding date of their goals. So some people get bonuses at work—quarterly bonuses, annual bonuses. You can earmark those to help accelerate the funding of the wedding or the car or the trip or whatever it is.
If you receive gifts from family, like on a birthday or perhaps even a Christmas gift, you can earmark that for the funding of these goals. Some people still receive, and they like receiving, their income tax refund. And so that's something that can be earmarked to help accelerate the funding of these goals.
Another thing to consider is taking on a part-time job. If the current household income is not enough to enable you to fund all of these shorter-term goals simultaneously and you want to accelerate it, you have to think about, how can we bring in additional income? And one thing you can do is take on some type of additional work, be it a part-time job, some type of remote or online job.
Just the other day, I had a client literally say he's going to take on a part-time job to pay for his family's vacation. Because after he did all of the research, he was shocked a little bit on how much that trip was going to cost. But it's an experience they absolutely are committed to providing for their children. And he is willing to take on a second job to do that.
The other thing is just look through the budget to see, "Can we find some additional cash out of the monthly spending? Can we reduce spending on some other areas temporarily, like some of the subscriptions—newspaper subscriptions, music subscriptions, Netflix, Hulu, all the various subscriptions we have." Perhaps you pause some spending temporarily to free up additional cash to help with those things. And then of course, always look for offers, points on your credit card, discounts as an employee, etc.
MARK: So Cindy, another thing though that you can do to help kind of stretch that savings is make sure you're investing it wisely. So talk to me a little bit about … you just put the money under the mattress? Probably not. But, you know, there's savings accounts, there's short-term CDs. How do you invest it so you're, you know, at least getting a return on that before you actually take the plunge and start spending it?
CINDY: Sure, yes. And we believe here at Schwab that short-term goals—think about something that's needed in three or four years—anytime you have a shorter time horizon, will you need that money? It should probably be invested in something that's going to offer you stability and liquidity.
And so for that, we're looking at cash and cash equivalent options. If your savings account at the bank is barely paying you anything, you could probably move that cash somewhere else to get a slightly higher yield. So think about things like a CD or Treasury or money market fund. All of these instruments have been paying a very attractive rate here recently, and they're going to give you more of a yield, more growth on your money, than just a regular savings account.
And you don't have to risk that money to the ups and downs of the stock market. So the goal—keep this in mind—the goal for your short-term money is stability and liquidity. You do not want to expose that to the ups and downs of the stock market.
Now, as I mentioned a moment ago, if you already have money sitting at the bank and it's just not paying anything, call your bank and inquire about CD rates or Treasuries or money market funds, because right now those rates are still pretty attractive, and it helps you grow that money even more so that you can even achieve the goal or have additional money, some of that incidentals, to help cover some of those unexpected expenses. So definitely look into cash and cash equivalent options.
And the one thing I'll say about—let's take CDs for example, Mark—is people know that, "Hey, I should just go buy a one-year CD or something like that." And that might be wise. But the thing I want to caution you about is when you're paying for something—like let's take the vacation as an example—and you know, at some point you're going to need to buy the plane ticket. You're going to need to make the reservation for your accommodations, be it hotel or whatever. You can't wait until the week of the trip to make that.
So even though your trip itself may be 12 months down the road, you may need money for a deposit six months or nine months down the road. So be sure to plan for that because you can do what's called laddering CDs.
So maybe you buy a nine-month CD that's going to come due and maybe that's for $1,000 to cover your flights or something like that. So just keep that in mind. You don't want to tie 100% of your vacation spending plan up in a 12-month CD when you're going to need some of that money ahead of that due date.
MARK: Cindy, just a couple more questions. What are some of the kind of unexpected, unusual things that maybe people don't think about—either when it comes to helping to defray costs or things to worry about—maybe, maybe not have to spend money on—that could affect their budget?
CINDY: Several things here. One, I've already mentioned a little bit earlier, but it's all the incidentals. And I'm, I'm guilty. I don't always plan for tipping, right? Whether this is people that are cleaning your room or your resort every day or whatever the case may be—but things like that, you need to plan for it.
Travel insurance—depending on what type of trip is going to be—if it's really a nice trip, let's say it's overseas somewhere and it cost you a lot of money, and something happens with weather or the plane that derails your trip, do you want to be in a position of having to lose all of the money you spent on the trip, or would you like to get some of that back? Other things is bag delays.
I was just talking to a coworker of mine who took a trip a couple of weeks ago and her bag was lost from the airport's standpoint, but she had one of those little trackers in the bag. She could see where the bag was. She didn't get the bag until she got back home. OK, so just bear in mind, your luggage might get lost, you might have to go buy some clothes. So this is why it's so important to plan for some of those unexpected expenses and incidentals.
And other things to think about to help defray some of the costs is just exhaust all avenues for other perks and benefits that can help save on some of these expenses. For example, your employer may offer you some benefits. Perhaps you get discounts on flights and hotels and rental cars and park admissions and event tickets.
I know for our employer, we can do that. We get to take advantage of the corporate travel for our personal travel and discounts on rental cars and flights and hotels, and it's wonderful. So take a look at stuff like that. Also, if you use cards that award you with points, those points can be redeemed for flights and hotels and cash and other things like that.
And then lastly, I do talk to some clients about … just to have them consider are you traveling or are you going on a vacation? Because a vacation for a lot of people, and it—you have to define what it means for you—but for a lot of people, it's just kind of hanging out at some centralized location, enjoying what that area has to offer, right?
A cruise may be a good example of that. Sometimes these cruise ships are massive, and they are a destination unto themselves, and people's plan to just stay on the cruise and truly enjoy the ship.
But if you're going to travel, travel can include more logistics. You may not be stationary in one place. You may have to get from one place to the next—additional flights, additional hotels—thus is going to require more of a budget for those types of things.
And one more thing, too, is think about what you most want to do on the trip, whatever … if it's a travel or a vacation. If you're going to a destination and you're really wanting to enjoy a concert, for example, then earmark most of your money for the best concert ticket you can afford, right?
Maybe you go a little cheap on your accommodations and maybe instead of flying business class, you fly coach, or you even drive if it's four or five hours away. Look for ways to cut costs on things that aren't as important to you so that you can free up more of your budget on the things that are truly important to you on that vacation or whatever the goal is.
MARK: Cindy, last question, and that is we always try to explore a little bit the cognitive and emotional decision-making biases that we all have. So from your experiences talking to clients, which of these decision-making biases do you find tend to plague people who are kind of spending money or saving money for some of the things that we've been talking about today?
CINDY: So these usually fall into one of two kind of ends of the spectrum, if you will. Both are driven by emotion.
On the one hand, there are people like you mentioned earlier, Mark, who say, "We're going to take this vacation. I don't care what we have to do. I don't care if I have to run up a bunch of debt. I just want to take my family on a vacation, and we're going for it." They haven't planned. They know they haven't planned. They know they should plan. And there is this lingering worry in their mind that tells them, "I shouldn't be doing this, but I'm going to do it anyway."
And then they come back after the trip and they're burdened with a lot of stress, a lot of worry, and now a lot more concern about, "How do I make these payments on all of these expenses we've just run up?"
At the other end of the spectrum, also driven by emotion, are people who may have the money set aside. Sometimes they're people in retirement who have saved for the forever home or have saved for a 50 or $60,000 trip for them and their adult children and their grandchildren.
But there's something in them that says, "We've spent the last 30 years of our lives saving, and now all of a sudden, we're supposed to start spending," and they're uncomfortable with that. And so as you can imagine, we have to provide the appropriate counseling. And it always goes back to, "Let's start with a plan."
So for the folks that's been saving for 30 years, and now all of the money is there, it's showing them in black and white that you have done an excellent job of preparing for your retirement years. You've got the income you're going to need. Your healthcare expenses are covered. A lot of your wants and probably some of your wishes—you are in a position now to afford to spend that money today, even if you live to be 95 or 100.
And so in a lot of those cases, I personally have had to give people permission to enjoy this lifestyle goals that they have saved for, for many, many years. And a lot of them will feel the freedom to go do it. And they love it.
To the other extreme, we have to say, "Listen, I'm not going to criticize you. I understand the desire to want to take your family on a vacation. Now that it's done, let's sit down. Let's put a plan together for not only how do we pay down this debt that has been accumulated, but how do we put you in a position where you can consistently save for your short- and long-term priorities and not have to feel all of this guilt and anxiety and frustration about taking your family on a well-deserved vacation?"
So we can help in either scenario.
MARK: It doesn't cost anything to just stop and think a decision through before jumping in, right?
CINDY: That's right.
MARK: Cindy Scott is a financial planner here at Schwab out of our Westlake, Texas, office. Cindy, thanks for coming back on the show.
CINDY: You're welcome. I enjoyed being here today, Mark.
MARK: If you're on your summer vacation right now, or you have already taken it, I hope you're either having or had a great time.
In fact, we have many back episodes of Financial Decoder that are ideal for road trips, so give them a listen.
And if you're planning your next trip, we hope some of the ideas we talked about will make it easier to save for that dream vacation.
And if you're planning any other large purchases, the principles that Cindy covered for vacations apply equally as well.
If you'd like to hear more from me, you can follow me on my LinkedIn page or at X @Mark Riepe: M-A-R-K-R-I-E-P-E.
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For important disclosures, see the show notes and schwab.com/FinancialDecoder.
[1] "Mental accounting," behavioraleconomics.com, https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/mental-accounting/
[2] Santos, Laurie, "Cognitive Biases: Mental Accounting," Khan Academy, https://www.khanacademy.org/partner-content/wi-phi/wiphi-critical-thinking/wiphi-cognitive-biases/v/mental-accounting
[3] Perrottet, Tony, "Where Was the Birthplace of the American Vacation?" Smithsonian Magazine, April 2013, https://www.smithsonianmag.com/travel/where-was-the-birthplace-of-the-american-vacation-5520155/