How acting like Carrie from Sex and the City will send you broke
Hands up who wanted to be Carrie from Sex and the City when they grew up?
Of the four girlfriends, Carrie was the free-spirited, fashionista with the enviable shoe collection. And we loved her for it. She wasn't hung up on a career, money or anything particularly serious until the day she worked out she very quickly needed to adult.
That was the day her bank manager told her she was not a desirable candidate for a loan. Words no one ever wants to hear! It meant Carrie needed to come up with some fast dough to buy her apartment or else move out in 30 days.
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On a shoe-shopping excursion with Miranda as she bemoaned her lack of assets, Carrie does the sums and realises she has $A40,000 ($42,000) worth of shoes in her closet.
To which she cried, "I will literally be the old woman who lived in her shoes!".
Thankfully for Carrie, Charlotte hands over a past engagement ring that funds the deposit.
Sadly, there aren't many of us who have a fairy godmother dripping with diamonds who is willing to hand them over to fund our house deposit. Which is why we need to actively avoid the Carrie Complex when it comes to our finances.
What is the Carrie Complex? It's naively focusing on the now without thinking about tomorrow. Or to put it another way, it's choosing not to financially adult.
It's spending every cent you own on having a great time now, because you're young, carefree and fabulous. Blowing your cash on the latest bags, shoes, adventures and shouting your mates rounds of cocktails every time you go out. It's draining your bank account every pay and maxing out your credit card so you wince and mentally cross your fingers every time you hand it over.
It's deciding to delay becoming an adult until at least your mid-30s because you have plenty of time, the two girlfriends you're living with aren't going anywhere and besides, your boyfriend has his own pad so there's no need for you to save for your own home because the two of you have talked many times about marriage, babies and a life together.
If you think this sounds cliché or that we've moved on from this, don't be fooled. I've had many conversations in the last couple of months with women who are pressing pause on their finances when they meet a bloke who has a house or apartment of his own. And I've witnessed, all too often, the financial black hole that is left if the relationship doesn't work out.
It's burying your head in a big pile of cashmere and choosing to press pause and simply enjoy your 20s because you're only young once.
It sounds like a good idea until you hit your 30s. When suddenly you're motivated to adult but all you have is $40,000 worth of shoes. Or perhaps $40,000 worth of memories. And the boyfriend with the fancy pad? Oh, he moved on, which means the nest egg you were counting on moved on too.
Which was Ms Bradshaw's exact dilemma.
In Carrie's case she was also banking on some day moving in with her boyfriend, who already had his own pad and plenty of dosh. Hopefully today's 20-somethings are wiser than that.
Now I'm not suggesting you don't buy the shoes, you don't have adventures, you don't go out on a Friday night drinking with your girlfriends and enjoy your 20s. I am a shoe loving gal who has clocked up my own substantial shoe closet. However, the trick to avoiding the Carrie Complex is to enjoy today while still looking out for your future self.
Imagine if Carrie had bought $20,000 worth of shoes (still a sizeable amount) and popped the other $20,000 into her bank account. Or bought shares or started a business with that extra cash instead? Suddenly she still has a nicely stocked shoe closet but she's also accumulating assets on the side. Or perhaps she only went out for cocktails one night a week instead of three.
It's all about figuring out how to still enjoy yourself today while looking after yourself tomorrow. Or figuring out how to financially adult. (Something many people in their 40s and 50s haven't figured out how to do yet too!) It's also enjoying the power of compound interest, which if you're younger is the superpower you need to actively employ.
Now compound interest might not seem like much of a super power. I mean, interest of 3 per cent or 8 per cent doesn't seem that exciting. Well, not in the short term anyway. Yet if you think a little longer term, that's when compound interest starts to look far sexier.
For example, if you deposited $5000 when you were 20 to some type of investment that earns an average interest rate of 8 per cent and don't touch that money, it will grow to more than $180,000 by the time you retired at age 65. Somehow I don't think your Prada is going to increase by that amount. But where this becomes even more of a super power is when you decide to make savings a habit when you're younger. If you were to contribute another $5000 each year to that account (less than $100 a week), then by the time you retired it would grow to $2 million.
That's right. Seven figures from less than a measly $100 a week.
Yes, you want to have a great time in your 20s and 30s but why not have your cake and eat it too? By spending less than you earn and putting the compound interest to work.
My favourite Sex and the City characters were Samantha and Miranda. They enjoyed going out, had a fabulous wardrobe, killer shoes but were also fiercely financially independent. They owned their own apartments, ran businesses and had careers. They were sexy, sassy and financially fierce. Now that's a version of adulting I think we can all aspire to.
- Melissa Browne is CEO of accounting firm A&TA and financial planning firm The Money Barre and author of Fabulous but Broke.