The thought-provoking book Die With Zero offers six ways for you to determine when you might want to use your savings, even if you’re nowhere close to retirement

Comedian Al Madrigal told a story about his son wishing for a bigger house.

Madrigal explained, “My son came up to me the other day and really upset me. He said, “Dad, when are we going to get our big house?”

… I said, “Look man, I bought this house with my own money.” And I told him the truth: I said, “These people with the big houses, they got their money through inheritance.”

And he’s like, “What’s inheritance?” And I go, “Well that’s when grandma or grandpa passes away and they give you a lot of money and you get to go buy the big house.”

So not only did I explain inheritance, but what I really did was put us on Nona and Papa death watch.

Now my mom comes over and so much as coughs, and he’s like, “[Oh] yeah, here comes the big house!”

Welcome back to Financially Well, the finance podcast for Millennials.

The Three Most Common Objections to Exchanging Money for Experiences

In the last Financially Well episode, I shared an overview of the best book about money that I read this year: Die With Zero.

I focused specifically on the idea that you should exchange your money for experiences more often – and earlier in life. As author Bill Perkins says, “Rather than just focusing on saving up for a big pot full of money that you will most likely not be able to spend in your lifetime, live your life to the fullest now.”

But many people struggle to embrace this advice, for three primary reasons. They:

1. Misunderstand the risks
2. Prefer work over other activities
3. Assume their kids will miss out

Use Your Savings: Objection #1 (I’m Risk Averse!)

Die With Zero readily acknowledges that people naturally vary in their risk tolerance. Your experiences with money as a child or as a young adult significantly shape your feelings about how and when you use your savings. I understand why you may want to “play it safe” with your money.

Perkins wants to expand your perspective on risk, though. He emphasizes the following three concepts:

First, “Whatever level of risk you’re comfortable with, whatever bold moves you might contemplate for your life, you’re generally better off making those moves earlier in your life. That’s when you have a higher upside and a lower downside.”

Second, “Don’t underestimate the risk of inaction. Staying the course instead of making bold moves feels safe, but consider what you stand to lose.” With excessive caution, you may miss out on wonderful memories with friends and family that won’t present themselves again.

And third, “There’s a difference between low risk tolerance and plain old fear. Fear tends to take the actual risk and then blow it out of proportion…. When you consider all the safety net you’ve got in your life – from unemployment insurance provided by your job to private insurance you can buy against any kind of disaster, to good-old-fashioned help from your family – the worst-case scenario is probably not as bad as you think.”

Use Your Savings: Objection #2 (But I Love My Job!)

Perkins also regularly hears, “What, do you really expect me to quit a job I love just because I’ve hit some magical (retirement) date?”

You’re fortunate if work plays a prominent, positive role in your life. And in this scenario, you may not want to stop working once you’ve accumulated enough savings.

He doesn’t expect you to quit. He does, however, believe that you should “ramp up your spending accordingly” once you no longer need to generate the same income. That way, you can still maximize your life experiences as you continue to work.

Here’s what Die With Zero says that might look like in practice for someone who loves their work:

“Even if you enjoy every minute of the work that brings you money, failing to spend that money is still a waste. Let’s say you’re a professional dancer. If dance is your life, and you happen to also earn money from dancing, go ahead and spend it on dance-related experiences: splurge on private lessons with the best dance teachers if that’s what you value. Or hire someone to clean your place so you have more time to pursue dance. Just don’t let that money sit and go to waste. How you feel about the source of your money doesn’t change the calculus on maximizing your life.”

Use Your Savings: Objection #3 (What About the Kids?)

Every single time Perkins talks about Die With Zero, someone asks, “But what about my kids?”

Almost all of us want to make sure that we give our kids the best chance to remain financially stable once we’re no longer around. Even more, we may also want to give them money that they can use to make their lives better.

The “die with zero” argument fully supports leaving money to the people and causes you care about. But, the book argues, “The truth is that those people and causes would be better off getting your wealth sooner rather than later.” Perkins explains:

“Putting your kids first means you give to them much earlier, and you make a deliberate plan to make sure that what you have for your children reaches them when it will make the most impact. …If you don’t know when you’ll die, and you care so much about your kids, why do you want to wait until that random date for your offspring to get what you want them to have? .…This is the problem with inheritances: you’re leaving too much to chance. Regardless of the amount you’re passing on, it takes a great deal of luck for it to arrive exactly when each of your recipients needs the money most. Much more likely, the money will arrive too late for it to have maximum impact on the recipient’s quality of life.”

What Data Shows About Receiving an Inheritance in the U.S.

At what age do you think most people in the U.S. receive an inheritance?

The Federal Reserve Board found that, “For any income group you look at, the age of ‘inheritance receipt’ peaks at around 60. Overall, the data falls into more or less a normal (bell-shaped) distribution. So for every 100 people who inherit at around age 40, there are 100 people who inherit around age 80!”

So if you believe that a “person’s ability to extract real enjoyment out of a [financial] gift declines with their age,” then most people aren’t receiving money from family at the most opportune times. As Perkins writes, “As your adult children age, every dollar you give them goes less far, and at some point that money becomes almost useless to them.”

What ages would be ideal then? Die With Zero suggests that “the 26-to-35 age range combines the best of all considerations: old enough to be trusted with money, yet young enough to enjoy its benefits.” Plus, you’re more likely to be alive and healthy at those ages, which will allow you to share in the joy that your children experience from the gift.

Six Frameworks for Deciding When to Use Your Savings

If you’re interested in thinking differently about when you use your savings, you’ll likely need specific tactics for making better big-ticket spending decisions. Die With Zero offers six frameworks that may fit your life: 

Spending Framework #1: Consumption Smoothing

What if you saved less money during the years when you earn less income? In advocating for consumption smoothing, Perkins draws on economic models that argue against saving the same percentage of your income every year. 

Die With Zero notes, “Our incomes might vary from one month or one year to another, but that doesn’t mean our spending should reflect those variations. We would be better off if we evened out those variations. To do that, we need to basically transfer money from years of abundance into the leaner years.

But many of us “take money away from our starving younger selves to give to our future wealthier selves. …You may not be able to predict the magnitude of your future earnings, but you can be confident of the direction in your future earnings.”

Spending Framework #2: Personal Interest Rate

Perkins believes that “The older you are, the more someone should have to pay you to delay an experience. This amount, called your personal interest rate, rises with your age. 

When you’re 20, you can afford to wait a year or two to have an experience, because you can typically have the same experience later. Therefore, someone doesn’t have to pay you much for you to be willing to delay the experience.

Now suppose you’re 80. At this point, delaying an experience becomes much more costly, so your personal interest rate would have to be much higher than when you were 20. At some points in life, there is no amount of money someone can pay you to delay a valuable experience.”

Spending Framework #3: Would You Rather

The marshmallow test that Walter Mischel created for preschoolers in the 1960s asks, “Would you rather have one marshmallow now, or two marshmallows 15 minutes from now?”

Adults can apply a version of this question to their spending decisions, too. Would you rather have one experience now or two such experiences some years from now?

Die With Zero advises: “You can spend the money now or you can save it for later. If you save it for later, there’s potential for the money to grow. And the longer you let the investment grow, the more money you end up with.

Should you wait 10 years to get two of the experiences you could have today?

The answer probably depends on the experience. Some once-in-a-lifetime events, such as a wedding or graduation, can’t be replicated. But some experiences may actually be better if you delay it, as you can use the extra money to buy a significantly better version of the same experience.”

In general, Perkins finds that if you ask yourself, “Would I rather?,” you will naturally choose to delay when you’re younger and to avoid delays when you’re older. 

Spending Framework #4: Time Buckets

“Time buckets,” Perkins explains, “are a simple tool for discovering what you want your life to look like in broad strokes.”

 …Using this approach “will make you begin to realize that some experiences are better done at certain ages. Mountain climbing and attending loud concerts, for example, are much more fun when you’re younger.” And “not surprisingly, the most physically demanding activities tend to fall on the younger side of the timeline.” 

“By dividing goals into time buckets, you are taking a much more proactive approach to your life. In effect, you’re looking ahead over several coming decades of your life and trying to plan out all the various activities, events, and experiences you’d like to have.”

Spending Framework #5: Know Your Peak (Date)

Let’s say you read an article suggesting that you need $1 million to retire. You may assume that you certainly would retire once you hit that number. But for many people, that actually wouldn’t happen. Even at that milestone, you still would find reasons why you don’t have enough.

Perkins says, “Many of us have been trained to think that our plan for drawing down our savings should be framed in terms of numbers. Once we reach a certain amount in savings, we can then retire and start living off those savings.

Think of your net worth peak as a date instead. It’s tied to your biological age, which is just a measure of your overall health. For most people, the optimal net worth peak occurs at some point between the (chronological) ages of 45 and 60.”

Spending Framework #6: Insurance as a Hedge

I don’t want to suggest that you need more insurance. But Die With Zero mentions insurance in the context of fear:

“For every single thing you might be worried about in your future, there is an insurance product to protect you. The fact that insurance companies are willing to sell insurance for various risks shows that these risks can be quantified – and removed for those who don’t want to take those risks.”

Many people save specifically for the health care expenses they might incur when they’re much older (and this is one reason why an HSA is worth it for many Millennials). But I found a few of Perkins’s end-of-life health care costs helpful. He wrote:

“No amount of savings available to most people will cover the costliest healthcare you might possibly need. For example, cancer treatments can easily cost half a million dollars a year.” In fact, his father paid $50,000 per night for the hospital stay at the end of his life.

“When you oversave for the end of life, you “give up years of your life while healthy and vibrant to buy a few extra weeks of life when you’re sick and immobile…. It’s much smarter to spend your healthcare money on the front end (to maintain your health and try to prevent disease) than to spend it at the end, when you get a lot less bang for every buck you spend.”

Viewing Money as a Tool May Help You to Reframe Saving and Spending

Ultimely, through these two Financially Well episodes, I want to remind you that money is nothing more than a tool in your life. It’s a means to an end. 

As Die With Zero frames it, “Having money helps you to achieve the goal of enjoying your life. But trying to maximize money actually gets in the way of achieving” that primary goal.

Whether it involves a “big house” for your kids or something else entirely.

Thanks for listening to the Financially Well podcast. You can purchase a copy of Bill Perkins’s thoughtful book here.

[Editor’s note: this article reflects the transcript (which I’ve edited for clarity) of a recent Financially Well podcast episode.]

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About the author: Kevin Mahoney, CFP®

Hi, I’m Kevin. I’m a financial advisor in Washington, DC. I’m also the founder of Illumint, an independent financial planning company in the District that specializes in financial planning for Millennials like you. I empower our generation with the confidence to invest an inheritance, financial gift, or extra savings. If you’re new to Financially Well, welcome – you now have access to the leading finance podcast for Millennials. I encourage you to read, watch, or listen to the ideas I’ve shared about making your money work for you. And then when you’re ready, please send me your thoughts & questions!