“I bet that cost you a pretty penny,” I said with a grin. “No Daddy, it cost you a pretty penny,” my daughter replied with an even bigger grin. The object we were referring to was a very expensive double BOB stroller that had caught my eye in my daughter’s garage. It appears that, unbeknownst to Grandpa, Grandma had gone a little wild with gifts from Babies “R” Us. With a new grandchild arriving virtually every year for the last ten years, my wife has purchased so much stuff from that store that you would think she could have saved them from bankruptcy all on her own.

However, I don’t begrudge her joy when it comes to buying presents for the grandkids. On the contrary, I encourage it because being doting grandparents is important to me. Growing up, I thought of grandparents as old people who lived far away, and you never saw. My mom’s mom was 86 when I was born and her father was older than that. They lived in Boston and we were on the west coast. I saw them once before they died and I was only two at the time. My Dad’s parents were half as far away, in the mid-west, but I only remember seeing them twice. The first time was when I was eight, and the main thing I remember about that trip was the agony of having to sit in a car for 10 hours a day. To calm me down when I threw one of my recurring “I can’t stand sitting still” tantrums, my parents would tell me how wonderful it would be when I finally saw grandma and grandpa. So you can imagine the consternation I felt upon pulling into my Dad’s hometown of Pewaukee and having Dad stop at the graveyard and say “That’s where grandma and grandpa Ely are buried.” Not realizing he meant his grandparents and not mine, I blew a gasket.

For those of you who are not mechanically inclined, that idiom refers to a car engine. When the head gasket blows, your car loses power, overheats, and eventually stops running. I don’t know much about leaky head gaskets, but as a financial advisor I know the warning signs of a faulty financial head gasket. And that is why I am not worried about my wife’s spending on gifts for the grandkids. They are well within our targeted spending rate, so there is no danger of blowing a financial gasket.

In a September 2018 blog, Michael Kitces, a well-known financial writer and advisor, explains why spending rates are so important. In his article he writes about the rule of thumb of saving 10% to 15% of your income for retirement. “The key point, though, is that it’s not really the ‘savings rate’ that defines a successful savings path to retirement. It’s actually the spending rate – and having a spending rate that is less than 100% of household income – because functionally most people don’t ‘choose’ what to save per se… they choose what to spend, and then save the limited dollars that may or may not be left over…” And it is the big ticket items that make the biggest difference. So, “…making good decisions about the cars and the house matter way more than the lattes and the avocado toast!”

From the start of our marriage, we were prudent not only about our housing and transportation costs, but also about the lattes and avocado toast. We always lived in houses that were a little below our means and bought cars based more on economics than ego. We also controlled our monthly expenses by artificially limiting the amount available to spend. On top of that, we practiced what Kitces preaches that “…you can improve your spending rate (and therefore have more money available to save) by either spending less or simply by spending the same but earning more (or even earning more and spending more as long you don’t spend ALL of the raise!)”
To paraphrase the Beatles: as an eight year old, I blew my mind out in a car. However, as adults, my wife and I have lived far enough within our means to avoid blowing a financial gasket. And now that our house and cars are paid for, grandma has the freedom to go a little bit wild.

Article by Guerdon Ely

Guerdon T. Ely has over 25 years of experience as a financial planner and investment adviser. He is the author of Uncertainty is a Certainty: Fables for Fiduciaries, a book on prudent fiduciary investing. He is the creator and developer of two highly regarded retirement distribution software programs, MRD-Determinator and Pre-Determinator, which have been reviewed in MorningstarAdvisor.Com, Investment Advisor, Accounting Today, and WebCPA. Mr. Ely received a Master of Business Administration degree from California State University, Chico after graduating from the University of California at Santa Barbara with a degree in Economics. He is a Certified Financial Planner™, an Accredited Investment Fiduciary Analyst™, and a Chartered Financial Consultant™.