I’m at a pretty content point in my life. We have no debts. Our home is paid for. I have work that I’m happy with and a number of long-term projects I’m passionate about. Sarah has work that she loves as well. We have some money saved up.
When we look ahead, we don’t see any radical changes to this. All of our major plans for the next twenty years – the ones we’re pretty certain about – don’t require a huge pile of cash. They involve travel. They involve pre-college educational support for our children (things like buying musical instruments and paying for the costs of extracurricular activities they’re interested in).
The idea of buying a home in a rural area is still on the table, but it’s much more of a short-term goal and we have the numbers for that figured out already. We know what we want to spend and we have much of the cost of that purchase right here in the equity of our current home.
Yet, as I’ve mentioned before, we’re spending far less than we earn, which means our savings are going up.
We’re saving money without any sort of true long-term goal. I suppose that, if we had a goal, it would be to support long-term career freedom and choices for both myself and for Sarah, but as of right now and for the foreseeable future, we’re happy doing what we’re doing.
What do you do when you find yourself in that situation? The thing is, most personal finance books I’ve read never really address this head-on. Most investment books insist that you define your investing goals first, and define them clearly. Our goal, as vague as it is and if you can even call it a goal, has no real timeline at all.
So, what do we do with that money that we’re saving while we spend less than we earn? Here’s our gameplan.
First and foremost, we’re keeping our emergency fund strong. Our first priority for every dollar we bring in (after paying our bills, of course) is to keep up our emergency fund. We keep several months of living expenses in a savings account that we can quickly access if we so choose.
We use that money whenever there’s a personal emergency that we can’t easily pay for out of the unallocated portion of our budget (our budget has an unallocated line item for minor emergencies and unexpected bills). Then, we make it an extremely high priority to refill it in the coming weeks and months.
If our emergency fund is full, we split the money into several chunks. One piece of the pie is staying in cash and building up in a savings account. Another chunk goes into a pair of broad-based stock index funds at Vanguard. Yet another chunk goes into savings for an investment real estate purchase in the future. These three pieces are roughly equal. We also have a fourth piece that’s split into a few smaller things: dividend-bearing individual company stocks and foreign currency.
Why are we doing things that way? The big reason is diversification. No matter what happens, we won’t experience a huge swing in our savings, either upwards or downwards. However, because of the diversification of our money, we do see the money building at a faster rate overall than we would if it were all just sitting in savings.
Another reason is that we have flexiblity to choose to invest in things we believe in. If a company produced a product that we didn’t ethically or morally agree with, our investment future is not tied to that company. We could easily invest in other things. We can also wait to buy a property that we can control and put to good use – we plan on using whatever property we buy to provide low-cost housing to charitable groups.
Sure, that might mean a bit lower financial returns on that money, but it means much higher personal returns for us.
It’s also worth noting that our steps in each of these directions are tiny. We’re saving just a little bit each month in each of these directions. Although we’re happily spending far less than we earn, we’re not earning a mountain of money to begin with. We’re just trying to make good long-term choices with what we have.
We might not have a plan for the future set in stone, but we do have a plan for how to get there in terms of our money.