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When Financial Dreams Fade and Change
If you asked me what my major goals in life were 15 years ago, I would have mentioned having children with my new wife, someday owning a house and leveling up my career (at the time) in data mining.
Ten years ago, I would have mentioned being a good father and husband, growing The Simple Dollar as a business and eventually owning a big house in the country somewhere.
Even if you asked five years ago, I would have said being a good father and husband, retiring as early as humanly possible and writing powerful things that reached people.
If you asked me what my major goals in life are today, I still would say being a good father and husband, but also retiring after my children are financially independent, writing powerful things that reach people and giving myself the longest, healthiest life that I can.
Here’s the truth: goals change. The big things we want in life right now are going to gradually shift over time. We’ll find ourselves drifting away from big goals and drifting toward other big goals. Our lives change, and who we are changes, too. Some threads might remain in common, of course, because people typically have core values that don’t change, but the actual goals themselves are so often shaped by the changing of life.
This puts financial goals in an interesting place.
First of all, if you’re devoted to a financial goal now, will you still be devoted to it in five years? I mean, 10 years ago, I really thought I would be living in a big country house right now, and we were saving for that goal. At this point … I don’t really want to, not at all. Five years ago, Sarah and I were talking about ensuring our kids’ financial independence before they move out, but now we’re more interested in making sure that they’re out the door with as much stability as possible and on track for a successful, independent life. Our goals then are not our goals now. Likely, in five or 10 years, we’ll have different goals. Maybe we’ll even start leaning against any kind of early retirement.
If that’s the case, isn’t saving all of your money for a specific goal a mistake? For example, let’s say at 35 you’re strongly committed to retiring early and you stock every dime you can in your 401(k) and your IRA. Then, at 40, you fall in love and get married and decide to buy a house and have kids because you were swept off your feet in a way you never expected. That money’s locked up in those accounts, though, so you’re basically starting over with a different goal entirely.
This is an issue that has been on my mind recently due to my own life’s financial twists and turns, and I’ve come to some strong conclusions.
It is never a mistake to save for a goal.
You are never making a mistake by putting aside money for the future, no matter the reason. That money will be there waiting for you when you need it, even if your goals change.
That isn’t to say that there might not be somewhat better things you could do with your money in the moment. If you’re saving money for the future while also trying to pay down a credit card with 30% interest, there’s a good argument that paying off that credit card is a higher priority. However, it’s not a mistake to put money aside; you’re just choosing between two good options, with neither one really being “wrong,” even if there’s a good argument for another option.
This comes back to the “analysis paralysis” phenomenon of personal finance: people often get locked down in trying to make the “best” choice when any good choice is significantly better than no choice. Don’t fall into that trap. If you’re certain that one choice is definitely better than what you’re doing now and it’s the one that makes the most sense to you, go for it. It’s far better than just continuing what you’re doing now, even if that choice isn’t the best of all possible choices. Don’t let the perfect be the enemy of the good. That is to say, doing nothing is worse than not doing good.
You are never making a mistake putting aside money for a future goal, whether that goal is something specific like retirement or something general like just having an emergency fund against the unknown.
Some goals are universal.
So let’s get back to this retirement savings goal for a moment. In the Western world, it is pretty much always a good idea to save for retirement. There are very, very few cases in which it is not a good idea to have money set aside for retirement. Almost everyone will be glad to have some money in the bank when they hit their late 50s or early 60s.
To put it simply, saving money for retirement, at least to some extent, is something in which everyone can find value. Virtually everyone will get value out of having some money in a retirement account.
(Yes, of course, you can save excessively for retirement, but there’s almost no one who does that, and even if you were on such a pace, it would mean that you could either retire very early or stop immediately to aim for other goals.)
Similarly, having money in an emergency fund is something that almost everyone values. There’s almost no one that would not find value in having a pool of cash sitting there when a crisis happens in their life. It’s essentially a universal goal, something that virtually everyone will find useful.
Saving for those goals is something that will essentially always be valuable to you, even if you change goals. For example, as I realized I actually wanted to slow down my progress toward retirement a bit to make sure that I could maximally help my children launch their independent lives, I was still thrilled with all of the money I had already put away for that goal. Even if I don’t save another dime, I will still have a fairly secure retirement, and that feels good.
The same is true for my emergency fund. I have a very healthy emergency fund that I automatically contribute to each month. I never regret having money in there — ever. If I ever peek in and decide the balance is too high, which has never happened, I can always do something else with that money. For now, whenever I look at it, I’m simply glad it’s there.
The point is this: there are always good reasons for saving, even if they don’t line up with your overarching goals at the moment. Retirement savings might not be a central goal for you right now, but it’s never going to feel bad to have that money there. An emergency fund might not be something you dream about, but you’ll always be happy you have it.
However, it can be a mistake to “lock in” too much of your money.
Let’s be clear what I mean by “lock in.” “Lock in” simply means that you’re putting your money into an investment where there is significant difficulty or a financial penalty to get money out of that account.
Anything that would take a while to sell is “locked in” to some degree. Things like collectibles are “locked in.” Real estate is “locked in” to some degree.
Similarly, a 401(k) is “locked in” because you can only take out the money in retirement without facing a stiff penalty. IRAs are “locked in” for similar reasons. Roth IRAs are somewhat “locked in;” even though you can take your contributions out penalty-free, you can’t put them back. A 529 educational savings plan is “locked in” because you face a penalty for using the money for non-educational expenses.
That’s not to say that putting money into something that’s “locked in” is a bad idea — it often isn’t. However, putting too much money in there is a bad idea because it reduces your flexibility going forward.
If you are putting more money into a 401(k) when it already has more money than you’ll need in retirement, that’s a mistake. If you are putting more money into a 529 when it already has more than you’ll need for education, that’s a mistake.
There is value in liquidity.
Furthermore, you should never lock in money that you might need quickly for any reason. If you’re buying something like real estate or a collectible item or a certificate of deposit, the money you’re investing should not be money that you would need quickly.
Remember, there is value in liquidity. There is a lot of value in being able to quickly access the money you’ve invested in something.
For most people who are thinking about goals that will change gradually over time, this isn’t a big deal. If I had purchased some land to build a home on in the country and then before I decided to start building I realized that my goal had shifted away from a country house, it wouldn’t be a big deal. I could just sell the land again.
The point here is to be careful when locking down your money in order to save for the long term goal you have right now. Yeah, you’ll always value having some money in retirement, but will you always be glad that you put a ton of money into a child’s college savings fund? Will you always be glad you bought that collectible item?
There are a lot of investments that are much more flexible than real estate and 401(k) plans. You can put your money into a savings account, for example. You can buy stocks and bonds and index funds through a brokerage; they’re easy to sell.
There is also value in low-risk and high-risk, but high reward is not always the best choice.
It is not always the best choice to chase a big theoretical reward when investing. There is often a mindset in investment media that you should always be chasing the biggest gains, but the problem there is that past performance does not guarantee future results.
In my view, there are several levels of risk.
The least risky investments are those with low long term risk and low short term volatility. Think of a savings account, for example, or a certificate of deposit. I’d probably put highly rated bond index funds in this category, too. You’re not going to make a ton of money with these investments, but you are practically certain to make a little.
When you start adding more risk, what you’re usually adding is short term volatility at first when you move into things like stocks. The potential gains go up and you’re still not taking an enormous long term risk (over 10 years), but there is a pretty big risk of losing money over a one-year or three-year period. Here, I’m talking about things like stock index funds. They have a very long history of nice, long-term returns, but there are short periods of big losses. The road is bumpy. You should not have your money in stuff like this if you think you’ll need it within 10 years.
Then there’s the really high-risk stuff — stuff with short term volatility and no track record of lasting, long-term success. These are things that go up and go down like a yo-yo and see huge annual gains some years and huge losses other years. Things like precious metals, Bitcoin, individual stocks (particularly those of smaller companies), and collectibles fall into this category. Don’t invest here unless you know well what you’re investing in and you’re actively involved in watching that market.
The point is this: going for the biggest risk and the biggest reward isn’t always the best call. Higher risk stuff requires more patience and more knowledge in order to do well with it, and you have to accept you’re going to lose money sometimes. My own philosophy is this: if a long term goal is more than 10 years down the road, I’m putting that money into either stocks or real estate, two things that I know have a long term history of going up, and I don’t look at their value. If it’s less than ten years, the money goes into something safer. I invest a little bit in collectibles, but it’s because I have a good knowledge of some specific types and I seek huge bargains in them.
How does this relate to financial dreams changing? Don’t always bet everything on the long term. I don’t have all of my money in the stock market right now because, in the next few years, my big dreams in life may change and I may need the money sooner. Yes, this means my money might not grow quite as fast, but it also means that on the day I really decide that my goals have changed, I won’t be stuck with all of my money in the midst of a falling stock market when I want the money sooner rather than later.
I know retirement is more than ten years away, so I’m happy having all of my retirement money invested pretty aggressively. However, money for other goals isn’t invested quite as aggressively because, honestly, my goals are likely to shift before I get there. Retirement is a goal I know I’ll always have, but other goals aren’t and they’re likely to change. I likely won’t regret missing out on some gains regardless of what happens, but I’m likely to deeply regret being caught with too much of my money in a long term investment that’s on a downturn when I need it.
If it’s a “universal” goal and more than 10 years away, go aggressive. However, if it’s a goal that may change for you, diversify your savings for that goal, and keep at least some of it in something safe if your timeframe is less than 10 years out. In other words, diversify. Your goals will change and this keeps your future from being trapped by your investment choices today.
If you think (or feel) that saving is better than the opportunity before you, you’re almost always right.
One challenge that often happens to people who are saving for financial goals is that interesting opportunities come along that might prove to be a really good use of that saved money. Perhaps you are able to invest seed money in a prospective business, or maybe you can buy something expensive that you can flip to triple its value.
In those situations, give yourself a breather to get out of the heat of the moment, then listen carefully to your gut. If any significant part of you feels like keeping the savings is better than this opportunity, skip the opportunity. You should only go for it if your heart, mind and gut are all in agreement. It’s when your gut says one thing, your heart says another and your mind says something else that you’re often making some kind of mistake.
When in doubt, keep saving for the long-term goal that’s in your heart right now. Even if that goal changes, you’ll still be glad you have the savings rather than having jumped on board with an opportunity you’re not certain about.
Always remember, finances support your other dreams.
When you’re first chasing an expensive dream, it’s really easy to get caught up in trying to optimize the numbers and do everything perfectly, but it’s important to realize that finances are just supporting your other dreams and goals in life.
Your dreams and goals will change as you age and you want to make sure that your financial choices can change along with them. That means it’s okay to lock down your money for some universal things (we all need retirement), but be flexible and careful with your savings for other goals and be particularly careful about opportunities.
Ten years ago, my big goal was to own a big country house, and I was saving like mad for that goal.
Five years ago, my big goal was to achieve retirement as early as possible, and I was saving like mad for that goal, but I didn’t regret the money I had saved for the house. Because I was smart with that savings, it transitioned well to my new goal.
Now, my big goals are to get my children out on their own as securely as possible and then retire quickly. I don’t regret the money I saved for the house, nor do I regret the money I saved for early retirement.
Along the way, I didn’t lock the savings into anything (beyond what I would need for a normal retirement and normal college savings). I kept the risk balanced and diversified. I kept most of it liquid, so I could easily get at it if needed. I stayed out of most opportunities that came along. Because of those choices, the money I had saved for earlier goals transitioned easily to my newer goals in life. My money grew with me, and I hope your money grows with you, too.