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Spending Goals: Emotion vs. Reason

One of the interesting issues in financial planning is the incorporation of various types of spending goals in the plan. Most of us include the obvious goals such as food, shelter, medical expenses, utilities and so on. However, most of us also have other goals, many of which are not essential as basic requirements but are made a part of our planning because they are something we want or think we want. Such goals may include gifting, travel, hobbies, and a variety of luxuries that are so very tempting.
Over time, these types of goals tend to be baked into the plan and treated as necessities which are not revisited other than to verify they are still on the list. This aspect of the human tendency towards inertia can be costly and cause one to forego desirable goals because other, previously thought necessary, goals are still being funded.
Case in point: a family shares a vacation home which requires annual expenses which are not insubstantial. Over time, fewer and fewer family member utilize the home and other vacation options become preferred. Where this expense remains in the plan – after all, we’ve always had the vacation home – that means other goals may not be fully funded. An adviser would be able to point to this conflict and let the family judge whether that continuing expense is worth it, particularly if it means reducing or eliminating other goals. It may be easier to overcome the emotional tie when there are desirable alternatives.
Similarly, a permanent life insurance policy requires regular premium payments and might at some point require additional funding to keep in force. Yes, the policy owner is used to paying those premiums but does the owner ever revisit the original purpose of the policy and assess whether that policy best serves that need or if that need even exists today? An example is the plethora of large policies taken out years ago when the estate tax kicked in for very small estates and there was a need to provide for that tax so the heirs would receive a useful bequest. Today, with the estate tax applying only to a very few estates, the need for insurance to pay for the tax is absent for nearly every client. The spending on those premiums might better be directed to other goals.
Clearly, it is worth taking some time to periodically review spending goals and why you have them in the first place. If that goal is not as important as before or perhaps even inapplicable, removing it and directing the spending elsewhere makes perfect sense.


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