Even though I share my financial reports every month, I don’t see increasing my financial wealth as a goal. The accumulation of money is not a destination. I am not aiming for any particular measure of financial worth, such as ten million dollars of net worth or one million dollars of passive income each year. While these milestones would be nice, they, or any other financial metrics, are only means to an end — or to no end.
Money is only worth what you can do with it. What is the point of accumulating a higher balance in a banking account or a higher value of investments if you never put that money to use? I will concede:
- Leaving money alone to appreciate through compound interest or investment gains is a great way to build wealth over time.
- Saving as much as possible when you are young allows you to have more options as you proceed along your journey through life.
But money has very little meaning now on its own. There is no money, there are only bits and bytes in banking institutions’ extensive computer server farms. You trust that when your banking institution says your bytes have changed to award you a higher number, you can connect that account to someone else and transfer your bytes to pay for an expense. In rare cases, you may even wish to turn those bytes into pieces of paper or coins.
So when I hear that someone’s goal is to have a nest egg of ten million dollars, it is an empty goal. This goal is nothing more than having bits and bytes in a certain configuration on a certain server in a database record associated with your identity. I accept that it will be difficult to get the bytes to arrange in that fashion, but look beyond this. What would you like to do with that money?
You may feel happy or proud when you reach this or any milestone you set for yourself, but wealth doesn’t do any good sitting in your bank account. I mentioned above that saving more now provides you with more options in the future, so rather than looking at a number, start deciding which options you would like to pursue. Here are a few in no particular order. Assign your goals to the reasons you are saving money, not the money itself.
Providing the basic necessities for yourself and your family. Many people build wealth simply so they can survive, sometimes with just the necessities and sometimes in the style to which they are accustomed. These financial needs, including shelter, food, water, and health, need to be taken care of before you can consider doing anything else with your money. If you plan to stop working and expect your income to cease, saving for the necessities is essential.
Leaving money to your heirs. If you don’t have children, perhaps this is not a concern. But many people do have children and would like their wealth to pass along to the next generation. Not everyone with children will choose to set aside money for their children. I have heard arguments claiming that children are better off without trust funds and what may be excessive support from parents, but I feel that children can succeed with as many options available as possible.
Education for yourself and your family. Analytical people suggest basing decisions about education based on your financial return on investment. If you spend $100,000 for a degree, or much more if you have loans with interest to pay, how quickly will your new degree allow you to recoup those expenses? Well, thankfully not everyone believes that the only value of education is the ability to earn an increased income. A life without teachers, non-profit organizations, researchers, and artists would not be worth living. Saving for future education expenses, for you or your children, will reduce the difficulty in affording an educational program that does not put one on track to become a hedge fund manager.
Be a positive force in the world. There is at least one issue that is important to every adult. Money allows you to change the world if you concentrate your funds towards that issue. For example, Bill Gates believes that it is despicable that people throughout the world are still dying of malaria, a preventable and treatable disease. Through the Bill & Melinda Gates Foundation, an organization whose existence is possible due to his financial success, Bill uses his wealth to help eliminate needless death in Africa.
It’s admirable to want to increase your wealth, but that can’t be a goal. It’s one step on the way towards other goals. Money is nothing by itself, particularly if it is sitting in your bank account.
Why do you save money?
Updated August 2, 2010 and originally published April 10, 2009.