Skip to main content

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.

Labels

Labels:

Comments

Post a Comment

Popular posts from this blog

On Buying a Lifestyle...with a Fixed-Rate Mortgage

Despite all of the back and forth about sub-prime mortgages and the housing bubble, I am feeling just fine. The reason is that when purchasing, I followed some old advice: Don't expect to flip. In general, I've been told by many people that you shouldn't buy a home unless you plan to hold on to it for 7 years or longer. If the market does well and you decide to sell, fine. But if you want to be sure not to lose money, don't buy something that you only want for a year or two. I've been in my current location for more than 3 years. I like it. And I have no intention of leaving in the short or medium term. It seems to me, that real estate, like any asset class, has its ups and downs. But as a practical point, I don't look at my home as an asset per se. Rather, I consider it to be a fixed expense that I need to survive, much like food and water. Therefore, as long as the payment is reasonable and it functions to keep me warm and sheltered and comfortable, that is a...
Post a Comment
Read more

Do Better With Your Time

Recently, I've been extremely busy with some work commitments. The interesting thing for me is that this increased work activity has really helped crystallize some of my feelings with regard to time. And these ideas are a critical part about my view on personal finance. I'm curious to know if others feel similarly. Time is money. That is, Time, in some way, contains energy. Money, is also energy. In the act of working, I am able to compound and increase the amount of money that I have. I am exchanging my time and effort and thought which are components of my work, for the productivity that I produce. And this production gets me money from my employer. However, the first dollars that I make each day, week, or month are the most valuable. Then the ones that I make at the end are the most valuable. (Forget about taxes for a minute.) The reason is, the first ones help me have a place to live and food to eat. And the last ones are the ones that I can use to really improve my life lo...
3 comments
Read more

Quantitative Easing Round Three

It appears that we have another round of Quantitative Easing in the works. If you've been listening to any of the money shows over the past several months, you'll note that most of the major players were not anticipating that! However, a recent update from the Bernanke indicates that the possibility of Quantitative Easing Round Three (QE3) is a very real one....but not in the near term. This article from International Business Times does a good job of explaining the thought process around a possible QE3 and why the timing is not likely to be now. All that being said, the CPI is up and the price of energy is skyrocketing. It is not an easy thing for people to get to work in cars that are not efficient. However, that is not stopping people from certain segments of the political/media spectrum from announcing dirty secrets about Clean Energy . I find that Google News has a great mix of stories from all over and this story -- the increased energy costs is certainly one to watc...
Post a Comment
Read more