(Money Magazine) -- I'm 39, self-employed and make $200,000 a year. I have no mortgage and have saved $1.2 million, 75% of which is in retirement accounts. I'd like to relax and live it up a bit, but I'm afraid that the good days might end.
My question: Can I finally drop $40,000 on a used BMW and $50,000 on a kitchen remodeling? Or should I put that $90,000 toward my two kids' future college expenses, which are roughly a decade way? -- B.A., Harrisburg, Penn.
Being prudent doesn't mean you must live as if the bottom is going to fall out of your finances at any moment.
Ideally, you want to achieve a balance between saving and spending that allows you to enjoy life today without pampering yourself so much that you shirk your responsibilities for the future. From what you've told me, I'd say you're a long way from overindulging.
Of course, the mere mention of a $40,000 BMW will have some people accusing you of conspicuous consumption and worse. And you could easily find a car with a lower price. Relative to income, though, you paying $40,000 is roughly the equivalent of someone with the median household income paying about ten grand for a car, an amount that wouldn't raise an eyebrow.
As for the kitchen upgrade, $50,000 is a considerable sum. But your budget is actually less than the nearly $58,000 "Remodeling" magazine's latest cost vs. value survey found was the average cost of a kitchen renovation. By the way, the magazine also estimates you would recoup almost 70% of that cost at resale.
Given all this, you don't need to worry that you would be acting irresponsibly by refurbishing your kitchen and buying a nice used car you've had your eye on.
So I say go for it, on the condition that you do the following two things: first, continue to save for retirement via tax-advantaged plans for the self-employed or other retirement savings vehicles; second, set aside enough in a 529 plan or other college savings account over the next 10 years to pay for a decent chunk of your kids' education.
Considering that you're mortgage free, you should have plenty of disposable income for saving. You've also got a good head start on the retirement front, which should make it possible for you to save for retirement and education at the same time (although if push comes to shove, favor retirement first).
Is it possible the good days could end, slashing your income and forcing you to cut back your contributions toward your retirement and your kids' college costs?
Sure, life isn't totally predictable. But if you run into a rough patch, you'll do what we all do in tough times You'll adapt. You'll re-assess your goals and revise your planning based on your new circumstances.
Life could get kind of grim if we denied ourselves all treats because of the chance of a financial reversal in the future. As long as such splurges are the exception rather than the rule, all the more reason for you to enjoy them.
Do you know a Money Hero? MONEY magazine is celebrating people, both famous and unsung, who have done extraordinary work to improve others' financial well-being. Send an email to nominate your Money Hero.
|What we want Apple to unveil at WWDC|
|Millennials squeezed out of buying a home|
|7 traits the rich have in common|
|Big Data knows you're sick, tired and depressed|
|Your car is a giant computer - and it can be hacked|
Carlos Rodriguez is trying to rid himself of $15,000 in credit card debt, while paying his mortgage and saving for his son's college education.
Susan Carson and Laura DeLallo make $225,000 and have half a million in retirement savings, but their sprawling portfolios is proving hard to manage.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.49%||3.45%|
|15 yr fixed||2.77%||2.70%|
|30 yr refi||3.51%||3.47%|
|15 yr refi||2.81%||2.72%|
Today's featured rates: