Have you ever heard the expression “spending like a sailor on leave?” According to the dictionary the idiom is defined as spending “excessively, extravagantly, or wastefully.” I recently had a moment in my life where I witnessed this exact type of behavior from people who should not be acting like the proverbial drunken sailor on leave. This all happened when I went to visit some of my extended family members over a holiday break. This, in and of itself isn’t anything special. They had just moved to one of the North Carolina Beaches. Not close, it was still a 3 to 5 hour drive depending on traffic, but still better than the 10-14 hours it used to take us to go all the way up to New York where they used to live.
My Aunt, technically a cousin, and her husband had retired, settled a complex housing situation upstate, and moved to the beach to retire. This is all good. They loved that area, and vacationed there almost every year throughout their working and child rearing years. Now it’s their home. This seems to be the ideal situation. Take the assets they built over the course of their lives, and trade it from where they had to live, to where they wanted to live. Even though they came from up north where locals typically think of northerners as all being wealthy, they are of modest means. Both were career worker bees, Where my cousin worked for the city and has a pension, I believe her husband worked under the table for a big chunk of his career (something you see a lot of up there) and only has Social Security to fall back on. As part of the complex housing situation there was an inherited property that they fixed up and sold. They didn’t share the numbers but my guess is that there was close to a quarter million in cash, possibly more, depending on how much cash was available in the inherited estate. Here is the hitch, there are some other responsibilities that they inherited with the property and as I understand it, about half the cash was supposed to be put aside to cover those commitments. In effect, by my best estimate my older cousin would have somewhere around 150K that would be ‘theirs’ and the rest should be in some form of guardianship account. There is a ton of fluff room in these figures, but the reality is we aren’t talking millions or even several hundred thousand in income. This is the point where the story gets very interesting.
When making a major life change, say moving from the family home to the active early retirement home, you’d expect that some of the savings or financial resource reserves would go towards helping that transition. It’s perfectly reasonable. New furniture, fixing up the new property, etc. That stuff happened but when we arrived I learned an awful lot of extra spending happened as well. How much? I’m figuring closer to 75K. There was a brand new six seater street legal golf cart, a brand new above ground pool and deck (and they don’t swim often), a ton of extra landscaping when there was already nice landscaping in place, and a couple of new pergolas for both the front and back of the house, one for sitting and one for grilling as well as various other niceties. My first thought was that they went insane! Who in their right mind would spend half their savings on new toys that go down in value and honestly, don’t get used all that much. Even if you included all the money that’s supposed to be in reserve for the estate care as theirs, and you guestimate on the high end, it’s still a crazy percentage of one’s reserve savings. Possibly close to 25%. If you go to the low end, it’s, probably around half their savings.
I have a friend that I joke with about how savings is like a blood pressure cuff, you work hard to pump and pump and pump it up, and then something happens and it all goes away and then you get to start pumping it up all over again. That’s sort of what’s going on here and why I was taken aback. They are missing the pump piece of my little savings joke. As I said, they don’t have huge incomes. This spending spree is a one and done life event as they can’t really pump up those savings again.
I couldn’t comprehend how they were going to justify spending all that money. This is especially true when you consider the needs of the estate that could last years or decades. Then there are the financial needs related to their advancing age. I fully admit that we live in an age where “elderly” is more of a state of mind for people who take care of themselves. Today you can be a very active 80 year old who lives life to the fullest and has no major medical issues. That being said, most people are more prone to health issues when they get older. That’s just the nature of the human condition. Even if you transition to Medicare, health issues can be very expensive. Also, we have to remember that life has a tendency to happen. It’s not just health, it’s transmissions falling out of cars and it’s discovering termites in your brand new house, or pergola and/or all sorts of other unexpected things. If you are the type of person who likes to have cash on hand to deal with emergencies, big and small, this spending probably wasn’t a good series of decisions.
But then I started to think about it more, there were two things I couldn’t get out of my head. The first was my brother telling me again and again that I should give up my debt free lifestyle and just go into credit card debt up the wazoo to get anything I wanted. His opinion was that I had a government job that I could never lose, and all I really had to do was manage the debt appropriately and I’ll always have fun stuff. He’s wrong of course about the government job being ultra-stable. If there’s anything I’ve learned in the last several years, It’s that government jobs are more stable than the private sector, but unless you’re in a small federally mandated niche position, for the most part your job security ebbs and flows with the machinations of politics and budget allocations. Still, to his point, there is much truth about stability and government jobs. Ultimately, If you think about that, meaning debt management and regular payments on things, the best job to possibly have with that lifestyle would be a stable government job. It’s a lot easier to make regular payments over a longer term when you have a regular income that’s long-term as well. Regular payments means you can generally afford things beyond your ability to pay with cash on hand. So in theory if a big unexpected and expensive thing did happen and they had to use debt to pay for it, they could just start making payments again. My cousin’s retirement income, originating from state and the federal retirement programs was even more stable than the active government job. By my brother’s perspective, my cousins were completely justified in blowing every penny they had and more.
The second thing rolling around in my head was from the Grand Theft Auto V video game. I think I may have mentioned this in past articles but it’s a moment that’s worth repeating. In one of the scenes in that game which resonated strongly with me, there was a conversation about a nice sailboat that one of the main characters owned but didn’t use. When the character, a middle aged ex-criminal named Michael, was explaining why he owned the boat to the younger protagonist Franklin, he mused that he keeps it because he likes to look at it and that when he looks at it he likes to dream. I think the point of the scene was that the value of the boat wasn’t about using it to go sailing, it was about knowing he could do it if he wanted to. That knowledge, that he could use the boat whenever he wanted, and the way it would make him feel, was worth the cost of the boat to him. This thinking justified the idea that you can blow a ton of cash on something, not use it, and still get tons of value out of it.
These two thoughts as well as a few other conversations I had with some friends about the situation really got me thinking about the decisions to go on the aforementioned spending spree in a different way. I went over the questions again and again in my head.
Was it a good idea to piss away all that money, such a huge portion of an irreplaceable windfall?
Initially I thought it was a horrible idea. After considering it, I realized they didn’t have a risky position in life. All of their assets were owned with cash. They had a relatively good and hyper stable income, no debt and maintained some sort of financial cushion even if it was half what they had prior to the big spending spree. This led to the question of: Was it justified?
This justification is the central question and I have a hard time coming up with an answer. Is it justified to spend a lot of the windfall on yourself? Is it responsible? I’ve seen a few other folks do this in my life. A blob of money comes their way to the tune of tens or hundreds of thousands of dollars and the next thing you know most of it is gone. In some cases the people who received the huge cash infusion we’re comfortable in their life, already had cash reserves and didn’t really need the new money. To me they were more justified in having fun with the majority, if not the entirety of the windfall. But those that didn’t already have strong financial reserves, spending a ton on yourself isn’t justified. Spending a little bit is definitely acceptable. How much? I think most people would agree that 50% is probably way too much of a chunk of any windfall to blow if the bases of life aren’t covered. 10%? 20%? I think these are more reasonable numbers. Ultimately this is a decision based upon the values of the person making it. I’m sure there are standards and best practices from the financial sector. A quick look at google shows the majority of advice articles say spend a little on something you really want, but invest the rest. My cousins spent a ton on stuff they sorta kinda wanted but I know them. If they really wanted this stuff, they would have had it at their previous house.
What if there are others who could benefit from the money? I’m from a huge and overly connected Italian family. I know that the cousins who moved to the beach received tons of financial support when they were younger. I know my second cousins, their kids, well. The kids are a little resentful that Mom and Dad got help when they were younger but Mom and Dad aren’t willing to help out their own kids in the same way. I can understand their thinking but I also know that we live in a different world than my grandparents’ generation. The WWII generation gave and gave. Their generation’s value was to a large extent, to always work for the benefit of their children. The Baby Boomers, they were the hippies in the 60’s and the Reaganites in the 80’s. They are more of a “me” generation than millennials by far. My elder cousins are a textbook example of this thinking. Their opinion is that it’s their retirement, they worked for it, and they are going to enjoy it. Their kids can figure out their own way in life. Not choosing to pay it forward is a crappy decision, but looking around, it seems to be more the norm today.
One thought I had related to the question: If my “drunken sailor on leave spending spree” cousins saved long and hard for this money, would they have bought the same things at the same time? I don’t think the answer is “yes.” As a matter of fact I’m sure it is a strong “no!” They would never have purchased all of this brand new stuff. What they would have done is buy reasonably priced good condition lightly used stuff. Maybe they would have bought one really nice brand new thing because they wanted to splurge with the move, but that would be it. To me that’s a clear indicator that this was poor and wasteful spending.
There is absolutely more to this story as there always is with complex family dynamics. Those details aren’t important. What is important is the central questions of “How do you handle a windfall?” and “when and should you do the big splurge in your life?”
There really is only one example that I can think of years ago that works really well as an analogy. Without reiterating the entire story again as it is filled with complex family dynamics, my grandmother wanted to take us all on a cruise. Uncles, Aunts, Cousins, all of us. It wasn’t an event that came out of a windfall or found money. Her income situation was similar to my cousins. She used part of her life savings, but she knew it was a once in a lifetime event. We went, and it was a memory that will last a lifetime. It also had to be well under 10% of her nest egg, the remainder of which was needed for her care just a few short years later.
Ultimately, what my cousins did was questionable, especially when you consider their advancing age and other commitments. It’s clear to me and some others that the spending was far from the most responsible way they could manage their money. Yet many do question if it even was even irresponsible? This is one of those areas where technically the behavior was not illegal or immoral, but boy does it feel wrong at least to me. Fortunately, it really doesn’t affect me all that much. I’m not the person who’s going to have to go and try and use whatever is leftover to take care of them if and when they need it later in their life. That being said I’m sure I’ll be reflecting on their spending decisions every time I go visit them and see all their expensive stuff sitting there, mostly unused, losing value every day.
Now that I think about it, maybe I should go visit them more often. It’ll motivate me to figure out an answer to the thorny philosophical problem of exactly when and how is the right way to splurge on yourself in a big way. I’m sure I’ll want to at some point in my life and I’d like to know I’m doing it the most impactful yet responsible way, especially if there is a windfall of cash involved. On the positive side if I need solitude and some sort of inspiration for my contemplations I’ll have access to a brand new golf cart that I can take for a drive and go watch the sunset over the beach. I guess that’s something.
Coda: Two Weeks Later
Even after writing this article, I still can’t stop thinking about it. I came to the conclusion that my cousins probably didn’t have a spending plan, or at least their plan didn’t include long term targeted savings goals for large purchases. Because of that, the windfall became a shopping spree for the moment, not an accelerant to get them to where they want to be in life much sooner. I wish the conversation I had with them was “We got our pool five years earlier than we planned!” rather than “Well, we just decided to treat ourselves!”. I believe if that was the case, then I’d be thinking “I’m so happy for them!” rather than “Man, they are going to regret this!”. For the most part they are good people so I wish my thoughts could be more of the former than the latter.