Wednesday, November 09, 2011

Yes! You Should Keep Saving

Recently I was browsing an internet message board (Net Worth IQ) and I realized that for the rest of my life I will find personal finance fascinating because so many people have so many different outlooks and perspectives.

One person's recent question was essentially: Should I Keep Saving since it doesn't add much to my Net Worth as a percentage of the total?

My response is as follows:

I think that the real thing you're driving at is whether or not you've reached "critical mass". Bob Brinker uses this term to indicate the tipping point where your investment "dividends" are putting enough out in order to do two things:
1. Generate enough income for you to live your current lifestyle
2. Put out additional income on top of #1 such that the total principal grows enough to keep up with or ahead of inflation.

The main point here is that you should keep putting the 1k in each month -- not because you think it will up your net worth by 1, 10, or 50%, but because you want to get to critical mass. Critical mass enables you to be the boss and be literally 100% free with respect to your money from any kind of tragedy/job loss/etc.

I hope that helps! To that end, perhaps networthIQ should be tracking not just the growth in net worth, but also how much is from "income" vs "dividends" and what a persons' velocity of increase is.