Is it Better to Invest, or to Enjoy Life Now?
Why even bother investing? People who’ve thought about investing at all tend to fall into two camps. There are those who think that it is not possible or realistic to achieve financial abundance through investing, and those that do.
“Whether you think you can, or you think you can’t, you’re right”– Henry Ford
Many people falsely assume that you need a really high income to even make investing worthwhile. It seems silly for people to invest 20 dollars here or there when they barely make enough money to get by for the week. And surprisingly, this mentality persists even for people who make a solid middle-class income. I should know, I’ve been there.
Of course, there are those who simply don’t understand the specific tactics for making that happen, but we’re not talking about them. I’ll simply recommend that they call Vanguard and set up a simple Roth IRA with automatic contributions set up.
Many of the others, however, are comparing their current situation to high-income people that they know, or that they see on the media. Who cares if I save $20 today. Even if I 10x my money, I still only have $200, and that doesn’t go very far.
So instead, they live for today. I don’t think it is any surprise to anyone reading this, but our society has mastered immediate gratification. We have been trained to seek and demand convenience and quick answers. Patience is not a virtue in the first world. Smartphones, fast food, and payday loans all encourage people to have whatever they desire as soon as they desire it. So is it any surprise that people have a hard time waiting years to get some money? It feels so much better to scratch that itch today and spend money.
As most things in life though, following the herd is, at best, a recipe for mediocrity. I know my readers demand a better standard of life for themselves. Don’t follow the herd. Live like no one else today, so that you can live like no one else is able tomorrow.
Humans are Really Bad at Understanding Time and Numbers
Albert Einstein called compound interest the eighth wonder of the world. Notice that he didn’t call it the eighth fairly obvious observation of the week. The fact is we just really have a hard time conceptualizing the effects and the magnitude of such compounding. Sure, saving $20 a week doesn’t sound like a whole lot, and it isn’t. But if you start at 21 with a 10% annual average return, you would have about $750,000 by the time you retire at 67. Halfway through that process, at 44, you would only have about $83,000. This is a decent amount, but you’re likely not retiring any time soon.
This is why so often when we get started in investing, it seems like we are just spinning our wheels. We put away a couple hundred, or thousand, but still, feel like we’re not any closer to our retirement goal than when we started. I felt that way after spending over a year at my job trying to get my first $10,000 saved while living in a very expensive Denver market. I felt like I was trying so hard to get ahead, but was still just standing still.
Many “overnight successes” were years in the making. Our culture has glorified the idea of a prodigy and financial rockstar, but the reality is that most millionaires take several decades of diligent savings to get to that point.
It is Possible for You!
So no matter where you are on your financial journey, realize that it is possible for you to achieve this goal. It isn’t some pipe-dream. Others have achieved more with less, and so you can do the same. The process works for everyone, financial independence is simply a matter of two factors: time and savings rate.
Time is an important factor because, as we say with the $20 a week example, compounding investments take a long time to generate their results. And the most dramatic results come at the end of the investing process. These increases in wealth at the end of the investment time are what eventually offsets the amount of money that you need. And that is determined by your savings rate.
Your savings rate is the amount of money that you spend as a result of your income. If you make $100,000 per year and save $50,000, you have a 50% savings rate. So in order to become FI, you must have a sufficiently high savings rate.
A high savings rate means that you have low expenses. And the lower your expenses are, the less money you need to make from your investments to cover your expenses. Second, a high savings rate provides a lot more fuel for investments, meaning that you’ll get to your FI point much quicker.
So we invest because it allows us to create more wealth over time than simply working for wages and spending the money.
Define Your Why
No matter where you are today, it is possible to invest your way to wealth with enough time and a high savings rate. But why bother at all?
I can’t answer that for you. At the end of the day, this question is simply too personal and dependent on yourself. Your personality, your hopes and dreams, and your environment all help shape what having an abundance of money will mean to you. There is no right or wrong answer. You get to decide.
My personal why is freedom. I am a very independent person and am extremely curious. I love building things, learning, and exploring. And so I desire the time and financial freedom to pursue my interests without the constraint of needing to work for other people. And this is what I want for you too!
In life, I don’t think that money is intrinsically very valuable. It is merely a tool to help us achieve our vision. Investing can make you rich, but for most people that simply isn’t enough.
We Invest to Pursue our Why
Yes, we invest to make money. But this money is simply a tool which allows us to pursue our why. If you know your why, take a few minutes to quietly reflect on what this is. And if you don’t please take some time to define what it is you really want out of life.
Is it freedom, status, control, charity? Is it pulling up in a Lambo, stunting on your friends’ faces, and pulling the hottest chick at the bar? It’s all fine. Again, you get to decide! But do take the time to consider what you’re pursuing. Write it down, and review it often.
The reason is that investing can take a long time sometimes to bear fruit. And along the way, you may lose your drive and focus. It is okay if the why changes over time. It probably will.
This is why we invest. To give ourselves the best possible option over time to live a life true to ourselves, and not the one expected by others.
Until next time, to your success!
Tim
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