It is sensible to me to value financial security up to a point and in addition to other goals, because of the immensely delicious joys that come with not worrying about money. This is a stage that many people in America could reach, or millions more than typically do, if these people would just be willing to follow a program of moderation for their early earning years and not spend needlessly when young.
I have not achieved financial security yet, so I am not living in that comfort, but I’ve enjoyed the first few glimpses of it and figure it could be helpful to offer reasons to save more, now, in order to relax later.
The basic idea to keep in mind is that the earlier money is saved and invested, the more it earns for you due to compound interest. (Want way more? Read my long post on the math and its retirement savings effects.) This means that the money in your pocket today, now, when you’re young, is incredibly valuable. You probably have less money today than you will when you hit your peak earning years, but time in the market makes today’s dollar precious. The stock market, over time, has always risen. This means something very simple for your money: What you invest today will grow immensely in value.
My fairytale version of this is a Rumpelstiltskin metaphor. Imagine your small amount of money today as straw, and imagine that you have entered a room with a complicated spinning apparatus called the stock market that will turn it into gold. You see that someone who has put a very little bit of straw in years ago is returning years later, while you’re there, and that person is handed some gold. Not bad, you think, to get gold for a little straw.
Now imagine that you learn that the more straw you invest, the faster your straw will turn into gold and the more gold you’ll get, though it will still take years. You put your straw in now and come back with more and more bits of straw each month, each time adding a bit more to your machine and making it churn up gold faster and faster. Depending on how fast your gold supply grows to meet your spending needs, you can even start siphoning off some of the extra gold and still have enough gold to power your machine. Eventually, you have all the gold you’ll ever need in a pile and you can do what you like with it. That’s the power of investing what seems like today’s chump change early in the stock market. No piece of straw is too small to become gold.
This is not easy to do all the time of course, because it’s a game of delayed self-gratification, which the Marshmallow Experiment suggests can be rather difficult. That’s why I’d like to share that you will see some returns early in life, on your way to complete security when you know your gold machine is humming along. Personally, I am now at a point in my young career where I’ve been aggressively saving for retirement since age 20, and moving my other savings into useful investment vehicles, too, such that I know I have a gold machine up and running that will benefit me for the long term. With a few raises under my belt, I can feel the difference in my wealthy and stability from my student days by miles. I know the most valuable thing to do now is to continue piling up my savings before taking on other financial obligations like buying a home or grad school or having kids. Because I have a small foundational gold machine, I get to joyfully balance that goal with times during which I can say – knowing the value of each dollar I spend – “I don’t need the money.”
When do I say that? To illustrate, I believe there are generally two types of people, and you can easily be one or the other in different scenarios. The types are distinguished when the bill comes, and one person will happily forgive a $3 difference, while another will count down to the exact amount. I tended towards exactness most of my life, and that generally makes sense when you’re so financially conscious that you might order a cheaper entrée in order to save the $3. Also resentments can naturally build up when someone feels s/he is constantly subsidizing another friend, so separate checks make for a safe route.
Though I am very far from being “out of the woods” of saving aggressively, I realize that I have become the person who can see a $3 difference in my favor and say, “Let’s just split it.” This is not a hassle; it is a joy to be among friends and eating and drinking great things, and if I’ve already chosen to spend $X on the meal, what does that $3 difference matter if it saves us time and energy on penny pinching? I only accumulate money so that I can spend it amid people, places, and experiences that I love. I may be crazy to take it so far, but graciously splitting a $3 gives me hope for things to come: when I can look forward to picking up a whole tab without any worry, when I can host nice parties without sweating the cost, and when I can fly to see friends the world over without a major shock to my finances.
For further reading, I find Mr. Money Mustache’s post on the position of strength inspiring, perhaps the true realization of someone fully aware of the value of financial security. Until next time, enjoy saving and savor spending.