Desperation to participate in normalizing activities, and especially the desire to escape with long-awaited summer getaways, can be an expensive business—especially so because many have waited so long to “splurge”. And as any financial advisor knows, emotions and financial decisions don’t often mix well.
When we’ve thought about spending on travel and advising clients on retirement in the past, it was with an eye towards a few topics. Either, the lifestyle your client is planning for – as in our articles on where and how clients want to retire. Or, as in what might be competing for the funds a client might be saving for. But now as the world becomes more true and less topsy-turvy, travel might need to fall into the financial behavior of splurges, like we covered in our article on spending and dieting, or on this article on how every day small indulgences can help forgo big splurges.
It’s worth revisiting the basics with clients now, as the urge to splurge on travel, or any other “normal” activity (season tickets to the Flyers? Gritty says Yes! Your client’s budget says maybe not). But the thought of stepping out is hard to step away from. With the ideas of planned splurges (discussed in the articles above) and the following information, you can have a productive conversation with your clients, even if they are cabin-feverish. As plan sponsors know, “[m]any employees say that saving for travel and vacations impact their retirement savings. They mention that saving for vacations or family travel also impacts their ability to pay off debt.”
After more than a year cooped up indoors, almost every one of every age is ready to get back to the activities they missed. Economists are predicting an economic boom as businesses reopen and more and more aspects of daily life return to “business as usual” standards and profits surge, and travel is on the minds of those fortunate enough to be able to afford it.
This desperation to participate in normalizing activities, and especially the desire to escape with long-awaited summer getaways, can be an expensive business—especially so because many have waited so long to “splurge”. And as any financial advisor knows, emotions and financial decisions don’t often mix well, so now is the time for advisors to have open and honest conversations with their clients about budgeting. It can be easy to get caught up in the euphoria of finally meeting friends, going out, and seeing the world while losing sight of long-term financial goals. A short-term celebratory fund with hard limits can be helpful for clients who want to let loose and finally enjoy the experiences on which they’ve been missing out while also keeping spending habits in check.
As we wrote about in our article on the science of splurges:
The idea behind planned splurges, or “cheat days,” is to acknowledge having needs and wants so that you don’t feel like you are missing out on life or feel that you are constantly punishing yourself. And even those who don’t overspend can benefit from financial splurge days. Just as a diet can get too restrictive and verge into harmful habits, so too can restricting spending. Pursuing passions and having a social network doesn’t need to be expensive, but it shouldn’t be something you forgo to save another few pennies. Financial analysts say that a financial splurge can charge the brain, so long as you stay within your limits.
Understandable and budget-able as short-term spikes in spending may be, another danger isn’t just the one-time purchases, it’s the possibility of them becoming more frequent, or even routine as people dive headfirst into activities they missed. It’s especially important to talk to clients who have not only been spared the negative financial impacts of the pandemic, but who have been saving more, about the wealth effect. This is the behavioral economic theory that suggests that “consumers feel more financially secure and confident about their wealth when their homes or investment portfolios increase in value. They are made to feel richer, even if their income and fixed costs are the same as before.”
While confidence and security aren’t inherently a bad thing, what advisors and clients want to watch out for is overconfidence that leads to overspending, especially when combined with the itch to finally “return to normal”. For example, a weeklong trip is one thing, but several in the span of a few months can easily cost five figures, and for those who made significant progress on their financial goals, such short-term short-sightedness can bring them right back to where they were…or (the horror!) even worse off than they were a year ago if they’re feeling particularly extravagant.
On the flip side, not having a planned treat, or vacation, can result in a slow burn on the budget. As we said in our article on small indulgences, “It’s possible that because those who need to forgo the lunch out every day, because of the smaller salaries or higher debt levels, may be forgoing larger luxuries that they want, like vacations... And the result is small daily “budget leaks” on treats like lunch or syrupy lattes. If you can’t have the ski vacation you dream of, you are less likely to be able to turn down the daily latte.”
 For an article on overseas retirement, see
 For the full article on the competition for your client’s budget, see
 For the article on dieting and spending and behavioral science, see
 For the case for and against small indulgences, see
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.get xpress proposal