Why do you invest? Maybe it’s because you’ve been told you need to if you want to retire one day. Maybe it’s because it’s the smart thing to do with your money. Maybe it’s because you don’t want to work so hard to save up all that money and you want the compound interest to do the work for you.
Those are some general ideas, but if you take a moment to think about it, why do you invest? In other words, what personal goals are you working towards. Are you working towards FIRE (financial independence, retire early)? Are you trying to achieve a certain lifestyle for you (and your family)? Are you trying to buy a big ticket item like a house, car, international trip or degree? Are you trying to attain a certain level of security or comfort? Or have enough money stashed away in case you are let go from your job or need to tell your toxic boss off and leave for greener pastures?
It’s important to know why you save and invest. And in all likelihood, those goals change with time throughout your life. For me it is currently working towards the bigger goals of retirement and more personal freedom in my lifestyle.
After I turned 30, it seemed like a good time for some soul searching and updating some personal longer-term plans. One of which is retirement. I like the idea of retiring early, but I’m still not completely sold on the FIRE lifestyle. So I ran a retirement calculation with my current numbers to see where things stood.
The calculator showed that given my current situation, at age 30, if I stopped saving any money for retirement, but continued to invest, by age 65 (traditional retirement age), I could be worth ~$5 million (of course that depends on my rate of return). But let me repeat that. If I don’t save another dime for retirement again over the next 35 years, I could still be worth 5 million dollars! (I’d recommend checking out the calculator here - you could be in for a bit of a shock, either good or bad.)
If I took that path (traditional retirement), I’m pretty certain that that amount of money would be sufficient for a comfortable traditional retirement lifestyle (unless we see continued run away inflation like in the 70s and early 80s again). So that begs the question, “why the heck do I need to keep saving for retirement??” If that’s all squared away, I can focus on shorter term goals. I’m not saying give up on saving completely, that seems to be foolish. So soon after turning 30 and realizing that I could stop saving for retirement if I wanted to (although I haven’t), I decided to the only “logical” thing to do - buy my dream sports car. And I was able to do that because I started investing at an early age (14 years old). While it seems like an overnight success, it was actually 16 years in the making. 16 years of sacrifice through me saving and investing rather than spending that money right away.
Now if you are not into cars, don’t buy a fancy car. Buy what you truly value. If you can afford it. And investing for that specific goal will help you be able to afford it. A lot of people buy things that they think want or that society tells them that they should want, but that’s not always the case. Also having delay gratification helps a lot—being able to be patient working towards a long-term goal rather than needing something RIGHT NOW (and probably going into debt to “afford” it). Temperamentally, a lot of individuals have a hard time with delayed gratification, so if that come easier to you, count your blessings.
One’s life does not consist of the abundance of money or possessions. But having money can make it easier to attain certain things. An investing can make it easier to attain money. Earning money is a precondition for saving. And saving is a precondition for investing. So you need to focus on earning and saving first. But once you move on to the next level of investing, that is where things really begin to take off thanks to the power of exponential growth!