Choosing when to be extravagant should be part of your financial plan.
Stephanie’s Quinceañera would be her dream come true. This rite of passage is on the minds of many young girls turning 15. But for Stephanie, the dream included a horse dressed up as a unicorn, a Versace gold tiara, and $42,000 worth of centerpieces. Millions watched this spectacle on MTV’s My Super Sweet 16, a reality show featuring over-the-top birthday parties.
This Miami teenager’s dream birthday party did have a budget though: $300,000 (nearly 100 times the GDP per capita of some Latin American countries where the tradition originates). The day of the party, Stephanie’s parents give her a gift: a yearlong trip to Europe. Her triumphant reply to her guests says it all: “I’m going to France, bi***es!”
I like ridiculous reality shows, because they often make us feel so normal compared to the bizarre characters we see on television. When America watched Stephanie’s parties, nearly all of us wondered how some people could spend so extravagantly.
But the truth is that nearly all of us have something we irrationally spend on. My friend chided me about getting laser eye surgery as a non-income producing graduate, and I gave it right back to her about her penchant for $90 haircuts. While we all should cut these expenses, there are some things in life that feel important to us, especially when it comes to once-in-a-lifetime experiences and things that affect our self-esteem. These are the hardest things to cut. And unfortunately, the old adage that money doesn’t buy happiness isn’t exactly true, according to a recent study.
Sure, they seem silly to everyone but us. Like a broken record, we hear from parents and financial gurus that we just need to stop spending unnecessarily, but the reality is that spending always needs to be contextualized. Whether it’s a celebration, a trip, personal care, or whatever it might be, the key is to make clear priorities in life so you don’t have to feel guilty every time you spend money.
If joining a nice gym and buying organic food is important to you, cut down on concerts and travel. If you can’t bear to live with a roommate anymore, move out, then cut back on eating out. Be honest with yourself and make tradeoffs.
Stephanie’s parents were definitely extravagant, but maybe it was worth it to them. There will always be something that people might judge you for, but if it is consistent with your values and identity, it will be difficult to cut it out.
In those rare cases where you feel you must spend beyond your means, be sure it fits into your priority-driven budget. If you know you’ll need to go into debt, plan in advance to be sure its temporary.
Here are some tips:
• Avoid high-interest credit cards. When you plan in advance, you can explore better options, like a loan from Prosper or a no-interest payment plan.
• Be explicit about how you’ll pay off the debt. Will you be using a raise that will be kicking in soon? Savings from reduced spending on other items? Again, you just need to have a plan.
• Keep (and stick to) a budget that reflects the priorities that are important to you, and allocate your spending proportionally.
Prioritize what’s important to you to avoid the despair that out-of-control debt can bring. Since you’ll know exactly where your money has gone and how it will be repaid, you can rest easier at night about your financial life.
But please don’t buy a horse, dress it up as a unicorn, and allow your child to be shown on national TV riding it – that’s just cruel.
By Rohit Chopra
Rohit Chopra is a director at the Center for Sensible Finance.
He loves good birthday parties, regardless of the budget.
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