If you happen to be like Husband and I, you spent the past few years paying off debts and building up an emergency fund. When we first graduated, we paid around one thousand dollars towards our student loan debt every month. A thousand bucks, and that was on the 30 year extended payment plan! This did not include our car loan, mortgage, or boat loan. To pay it off quickly, we worked long hours and put every extra penny we could find toward our debt. When we finally paid off the most burdensome debts, we were left with quite a bit of money every month.
We spent a couple of months sitting around watching the money accumulate in our checking account. We bounced around a few ideas about what we should do with it:
- A down payment on a bigger house
- A really nice vacation
- A new car for yours truly
- A few new toys for Husband (this is still the outcome Husband prefers)
We decided that the best course of action was to use it to buy lots of different kinds of stuff. Over the past four years since we unloaded the car loans, boat loans, student loans, and other debt, we have bought all sorts of stuff and every single bit of it has increased our net worth.
We didn’t buy tangible objects that we could use, wear out, and throw away. We bought investments that have been slowly increasing in value. We researched carefully and spent our hard-earned money on stuff that has been appreciating in value or paying us dividends. We focused on investments that were diversified and established with a low to medium expected rate of return including mutual funds, exchange traded funds, bonds, and CDs.
None of these items add to my day-to-day enjoyment of life. They are all long-term investments with the goal being the future financial stability of my family and freedom from money related stress in the future. They add to my long-term life satisfaction.
We don’t invest in the latest fads. We don’t own gold or Apple stock. We aren’t investing to get rich quickly. While that would be nice, the slow and steady pace is usually best. Our portfolio includes a small selection of IBonds (bought before the fixed rate dropped to 0); two exchange traded funds that focus on dividends; a selection of mutual funds, some managed in our employer sponsored retirement plans; and a good old fashioned cash emergency fund we could live on for six to eight months.
The funds, both exchange traded and mutual, have gone up and down over the past few years. However, it doesn’t bother me. We are investing in these funds using the money we don’t need for our daily expenses. The lifestyle of my family doesn’t change based on the fluctuations of the market. Even if the price of the fund decreases, we still get dividends that are reinvested every quarter and interest on our bonds. Uncle Sam and a few corporations pay us for buying their investment products. It’s a pretty nice system.
Now that we are in a terribly busy and active time of our lives, we have slightly increased our living expenses, which has decreased the amount we have available to invest and save every month. But, our previous investments keep growing. Our net worth is slowly increasing and we are getting closer to financial freedom because we spent the money we saved on income generating investments and not new purses, hunting gear, or kitschy knick knacks. Long term, having a share of a mutual fund that will pay me dividends is much more important to me than a pair of shoes that will drift out of fashion in a few seasons.
So, next time you decide to bake pizza from scratch instead of eating out, forgo the new dress in favor of the one you bought last year, or walk over to the library instead of Barnes and Noble, take the money you save and use it to buy something that will actually lead to increased net worth and security in the future.