When a person is free from debt and is earning more than they spend, the natural thing to do is to turn to investment advice. Should I invest in stocks or bonds? Should I buy some real estate?
The goal of such investments is straightforward: the person simply wants to raise more money. Now that we’re debt free and have a healthy emergency fund, quite a lot of our money is in various investments. That money is working for us and earning us a reasonable return each year – and since we’re not using the income from those investments, we’re just reinvesting it for now.
If you’re looking strictly at increasing your net worth and building toward the earliest possible “retirement” date, this is absolutely the best route to take.
However, is that your primary goal in life? For some, that is clearly the goal. For others, it might not be.
Is your goal to raise inquisitive and self-reliant children?
Is your goal to see a lot of the world?
Is your goal to dive deeply into a less-lucrative but more fascinating career?
All of these things require financial investment, both in a direct sense (they may cost money) and in an indirect sense (they may take away time and focus from other methods of making money).
All of these things result in negligible financial returns. They don’t make money, at least not directly. You might find ways to turn non-financial life goals into money makers, but many goals simply don’t earn a great return. Sure, children who are thoughtful self-starters might end up earning a great deal and helping you out in retirement… or learning a new language might open up a career path… but those are secondary effects that you can’t plan for or predict.
The lack of direct financial return doesn’t mean that such investments aren’t worthwhile, though.
For example, Sarah and I are both quite happy to invest in our children. Our oldest child is into martial arts and ice skating. Our middle child loves ballet and is just starting to get into music. We are quite happy to pay for lessons and uniforms and equipment and instruments. We fill their summer with educational opportunities that they express any interest in, from science mini-camps to museum trips.
We also intend to travel internationally as a family when our children are a bit older, perhaps near the end of the coming decade. The cost of traveling with five to another continent will be pricy, but we want our children to see that there’s more to the world than Iowa, plus we want to see many places ourselves.
These things require money and time. That invested time and money takes away from other things we might be doing, such as building our careers or saving for retirement.
The thing is, the goal of good personal finance is to achieve the goals we have for our lives, whatever they might be. It means making better smaller choices in the moment in order to have the bigger things we want out of life.
As long as you’re covering your fundamental bases – retirement savings, a healthy emergency fund, freedom from debt – you should invest your money in the life you want most, even if that means indirect (or no) financial returns.