Comments on: Why Be Wealthy? Focus on Real Goals, Not Net Worth

By: Donna Freedman

Donna Freedman — Tue, 28 Sep 2010 15:46:46 +0000

I recently wrote a post called “If life is the currency, I’m already rich.” In it I explained why I wasn’t rushing to find a 9-to-5 job after huge midlife changes (divorce, moving, obtaining a college degree) but rather remaining a freelance writer.
I’m not advocating fiscal irresponsibility. I have some retirement monies and a small pension from my previous job and am funding a Roth IRA. I have an emergency fund. I live very frugally so that I can spend where I *want* to spend, e.g., travel.
For now this life works for me. If it stops working, I’ll try something else.
Here’s the link to the post, if that’s OK:
http://www.donnafreedman.com/2010/09/16/if-life-is-the-currency-im-already-rich/

By: Financial Samurai

Financial Samurai — Sat, 28 Aug 2010 05:12:00 +0000

I hope we can help improve the world through the Yakezie Scholarship vertical. It may be tough, as it will require us to find people who have the initiative to help themselves by submitting an essay, but we shall see!

By: Yana

Yana — Sun, 12 Apr 2009 19:34:52 +0000

“Not knowing how much ‘basic needs’ will cost in the future makes it hard to know how much to save.”

That sums it up perfectly, and is the reason I think we should save as much as we can.

By: Alison

Alison — Sun, 12 Apr 2009 06:17:56 +0000

To us, building assets has more to do with long-term security than anything else. We want to cover our basic needs, be comfortable, and have some left over to enjoy and to travel. Not knowing how much “basic needs” will cost in the future makes it hard to know how much to save. I think that fact alone is what sometimes makes me feel insecure, even when we do the best we can to save. But like anything else in life, this numbers game is about balance — providing what we need for today, and saving for short-, medium-, and long-term goals.

By: Rick

Rick — Sat, 11 Apr 2009 00:41:04 +0000

why save?
http://www.rgemonitor.com/globalmacro-monitor/256318/thoughts_on_the_bear_market_rally

Wealth destruction in our home values and investments mean that if you’re NOT saving, you’re going to be behind the 8 ball.

By: SJ

SJ — Fri, 10 Apr 2009 21:22:46 +0000

Well, the thing is right now i’m in grad school, so to me what little I save doesn’t matter much.

Also, housing costs are insanely expensive in the bay, so there’s no way i’ll be making that kind of investment anytime soon.

My major expenses are food entertainment, school. I can’t skimp on school =), and I already mostly cook… so entertainment? Let’s let me have fun!
Otherwise the only thing I have to worry about is traveling back home (and I can always beg my parents to foot the bill…)

My point is there isn’t anything in particular I’m saving on. No real short, mid-term goal. So just save b/c it’s responsible (builds character lol?) and for kicks. Maybe in a few years…

By: alper

alper — Fri, 10 Apr 2009 21:13:36 +0000

Why do I save? I don’t (well sort of) – but in my past life as an employee – I saved for this thing called retirement. I’m neither rich nor poor and looking back I see only two redeeming qualities (moneywise). I saved a moderate amount of my income and I’ve always feared debt. Your reasons for savings are great – keep at it. My kids will probably get the foundation assets, my wife and I will volunteer now and again and we hope to live out our lives without being a burden on anyone – but save – no way!

By: Jesse Michelsen

Jesse Michelsen — Fri, 10 Apr 2009 20:53:52 +0000

That is such a great question and you answered it very well. Just the other day my wife was worried about spending some money on something that was completely necessary and I had to tell her to focus on the big picture. Positivity is huge as well. Way to go

By: Rick

Rick — Fri, 10 Apr 2009 19:07:13 +0000

Debt and leverage are 2 very different things. Leverage is a form of debt, but it’s asset backed. Debt is debt. A personal loan is pure debt. A mortgage is a form of leverage.

I agree, you can’t spin debt out forever. But alot of people tried. And now they are reaping the rewards….

By: SteveDH

SteveDH — Fri, 10 Apr 2009 18:26:47 +0000

I can’t argue with the sound fundamentals you speak to but, with all due respect, I can not think of any word that I hate more than “leverage”. Especially now. Do you remember the commercial with the guy having and outdoor barbeque – he had it all (House,Car,Pool, etc.) but when asked how he did it he responded with a great big smile and said “I’m up to my eyeballs in debt!” Leverage is debt. You describe it as debt but added the caveat that it was backed by an asset. There are far to many banks, brokers, and retirement plans out there that learned that leverage without asset value is just plain debt and taxpayers are paying to maintain what “velocity” is left. No-risk (ha) mortgage backed securities bundled into bigger and less transparent and now non-performing investment packages along with credit default swaps have lit the light of realization for many. The word needs to remain in the science arena and those in finance need to call it debt. After all, you can’t be up to eyeballs in leverage. ;-)

By: Rassah

Rassah — Fri, 10 Apr 2009 18:01:03 +0000

My short term savings goals are to save enough for a down payment on a house construction, probably within 5 years. Even shorter goals are things like yearly vacations, new smartphone every few years, and other somewhat large expenses I can predict. I prefer to wait and save rather than buy on credit and pay off. My long term savings goals are to be able to retire at 55, living only off my asset income, and be able to afford to rent rooms anywhere in the world. I’d like to be able to spend a few months at a time in various European countries *cough*Italy*cough*, but to do that, I have to have enough to make $3,200 a month in interest/dividends. My savings goal of a few mil $$$ is based on that.

By: Rick

Rick — Fri, 10 Apr 2009 17:46:23 +0000

When I first started working, I couldn’t get (nor did I want) a credit card. So I saved to get the things I wanted (a desktop cost $1,500 back then for a 468k RAM). It’s always better to save than to use credit, and I still utilize this concept today, even though I have credit.

Saving is about more than just avoiding debt. It’s about having an emergency fund, it’s about planning for large purchases, it’s about having a little cash when you need it….and it’s also about building an asset base.

Sometimes things that don’t make sense make alot more than you realize when the time comes and you review history.

By: SJ

SJ — Fri, 10 Apr 2009 17:41:28 +0000

Exactly… what is the point of saving the $$$’s…

Right now I have no reason to be saving… other then avoiding debt blah blah…
But I also don’t have reason to spend much.

So I treat it as a game lol… kinda entertaining…

By: Rick

Rick — Fri, 10 Apr 2009 16:24:21 +0000

The concept of cross-disciplinary discussion is something that has been popular for about 20 years or so, and is done very effectively at the Santa Fe Institute (I’ve actually attended one of their wonderful seminars – very eye opening).

Economics (or financial management) is very similar to physics. After all, some of the most basic financial terms are related to physics. Take “leverage”. What is it? Basically, in finance, it’s debt with an asset backing it. It’s a means of putting value to work using something that is illiquid. In physics, it is the use of a fulcrum and lever (or other devices) to lift or move objects which ordinarily cannot be moved without external assistance. Very similar ideas from very different disciplines.

The comment that money shouldn’t be an end in itself is very true. Money is energy for the economy (think monetary velocity – another cross disciplinary concept). When it sits in the bank, it’s potential energy for you (it’s actually providing kinetic energy for the people who are using it to leverage their other assets).

So just saying that money is nothing in itself if it sits in the bank is NOT true. HOWEVER, if the relative use (relativity – another cross discipline concept!) of money as it relates to YOU is concerned, it IS true. If it’s in the bank, it’s not doing anything for you but gaining interest. Which is OK, but not the absolute best use of it.

But, like everything, there is a balance. You must have savings, investing, and spending in some kind of relationship. The law of conservation of matter and energy is immutable. You cannot create more energy than the existing amount of matter holds in potential.

The same is true of money. In order for values to grow, the economy must grow, which means new markets and fields of discovery opened. If all money is held constant, this can only occur if velocity increases – which means we have to invest and spend more and faster. There are limits to our capability of doing this. As a result, Central Banks increase the money supply to overcome the limiting factors of velocity, thus easing economic growth.

Even with the creation of money, the laws of monetary value remain immutable. Prices can only be equivalent to the amount of money in the system and how quickly it gets around. Add more money, prices will go up. Use it faster, prices will go up. And vice versa.
But if velocity and supply are held constant, you cannot create more than is held in potential.

This is why the balance of savings, investing and savings are very important. It’s also why you have to do your due diligence when you invest and spend (and save, to some degree). Just like in physics, energy can be wasted (what furnace is 100% efficient?), money can be wasted. It is only with effort and intelligence that we get a maximal output and return.

By: SteveDH

SteveDH — Fri, 10 Apr 2009 15:32:18 +0000

I absolutely refuse to save! But I do play a mind game with myself (?) and spend forward. I retired in January 2008 with sufficient pension income to meet my everyday expenses. I do leave my foundation accounts alone and allow their value to grow in terms of capital gains (haven’t seen many) and interest/dividends. My IRA, along with my wife’s IRA, three (non deferred) investment accounts and our home make up our foundation. Our bank account plus the spent-forward account is used for all expenses. My spent-forward account is really a sub-account within Quicken and maintained by category on an Excel spreadsheet. Categories include budget-busting bills (Car, Home, Medical Insurances as well as property tax) and all of those retirement goals we set, including next road trip, next cruise, next PC, etc. etc.
I even sweep excess income and unspent budget out my checking account each month and “spend” it in whatever category needs attention.
Why do I save? I don’t (well sort of) – but in my past life as an employee – I saved for this thing called retirement. I’m neither rich nor poor and looking back I see only two redeeming qualities (moneywise). I saved a moderate amount of my income and I’ve always feared debt. Your reasons for savings are great – keep at it. My kids will probably get the foundation assets, my wife and I will volunteer now and again and we hope to live out our lives without being a burden on anyone – but save – no way!

By: Yana

Yana — Fri, 10 Apr 2009 15:16:56 +0000

We save money because we want to have it, because it is required to live. We aren’t so much in charge as far as what we will have to pay for whatever we happen to need or want. To have money is to be ready, and also, while many people depend on the ability to borrow money, we are our own creditor. Our savings are what we borrow from and make payments to. When I say I want to amass millions of dollars, it is like having a credit line that high. The biggest threat I perceive to our wealth is the cost of medical care, and I base our financial goals on the lifetime limits that medical insurance companies used to have. Even though they certainly never paid the benefits, $2 million per person sounds like a reasonable amount to set aside for medical considering today’s costs. Should that system be overhauled as it should be, I would feel considerably less pressure to amass huge sums of money. People are most vulnerable in areas like medical and funeral costs, and I find it scary and disheartening that it is standard to be kicked when you are down in this society.

By: Kelly

Kelly — Fri, 10 Apr 2009 12:40:14 +0000

Great post, Flexo!

We automatically save for retirement (whatever form that takes), and for emergencies.

We also create short and long term goals and save for them based on what is important to us. The things that tend to be the most important are experiences. For instance we saved our change for 2 years so we could buy a puppy. Now we’re saving our change for a Disney vacation.

By: Baker

Baker — Fri, 10 Apr 2009 12:27:48 +0000

I couldn’t agree more! It really helps my wife and I maintain motivation when we attach small achievements in our financial life to tangible long-term goals. Without this attachment it would be very easy to become overwhelmed with our financial goals.

I love the posts this week… they are providing lots of inspiration! Keep up the great work!