A 30-year-old makes $520,000 per year and has a net worth that's just above $1 million. He saves a high percentage of his money, but he still isn't sure how to spend it while feeling guilt-free. He has been eying some expensive items but isn't sure how to establish reasonable spending limits.
"I got back into the watch game this year," he said.
These were some of the top suggestions on Reddit.
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Hit Your Savings Target First
One of the top comments came from a Redditor who encouraged the 30-year-old to hit their savings target first. The Redditor already maxes out his retirement accounts, so the maximum contribution limits can be a good benchmark.
"Hit your savings targets and spend the rest guilt-free," the commenter said.
Another commenter chimed in saying that this simple approach is sufficient for most people who are setting budgets.
"All you have to do is hit your savings goal and then just go live your life," the commenter said.
Savings targets will put the 30-year-old on the path to a smooth retirement. He's already well ahead of his peers, especially since he owns a house and is already chipping away at the mortgage.
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Buy Lightly Used
The Redditor is looking at expensive watches, and while he can afford it, he is worried about the purchase feeling "wasteful" since he already has one. He has an emergency fund that can cover one year of his expenses, but some people don't want to spend out of the principle of feeling that the purchase doesn't make much sense. One Redditor reframed it into an opportunity for the 30-year-old to make a smart purchase.
"Buy lightly used, skip the depreciation," the commenter said. "That way, if you change your mind, you can resell at little loss."
"If you'll wear it, go for it," another commenter said. "The good thing about nice watches is that you can always flip them if you don't find yourself wearing them."
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Addressing The Opportunity Cost
The 30-year-old also mentioned in the comments that the "opportunity cost ‘feels bad,' even if the math seems reasonable." The logic behind opportunity cost is that if you put $10,000 into an index fund instead of buying a luxury watch, it could compound into a much higher number in the long run.
The 30-year-old knows this well since he is maximizing his savings and has a seven-figure portfolio. He has seen the power of compounding firsthand, and he knows what he is giving up by purchasing the watch.
"This is a psychological thing where you’ve continually thought towards savings maximization," one commenter said. "It is only semi-related to how much money you actually have. The key is putting in the effort towards understanding your emotions."
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