When we first start investing, it’s easy to think about investments as something completely distinct from our everyday personal finances. But as investors mature, they learn to see that every dollar spent is an investment, an allocation, a potential for growth or loss. The problem is that most people spend with little consideration for the long term implications of the allocation. To become a better investor, you have to accept that your investments don’t start and stop with your Betterment IRA, they extend to everything that goes on with your bank account. Here are some examples to better illustrate this principle.
- Income Protection and Employee Protection in Business. It’s easy to think about a business’s growth and security as being a direct result of their success within a market, but this is not completely the case. Much of a company’s financial security is about the health and security of their employees. Issues like income protection allow employees to remain financially secure if they have a baby or become ill. Protecting workers in this way prevents “Presenteeism”, the tendency of sick employees to come to work because they can’t afford not to, thereby reducing their own productivity while spreading an illness that reduces worker productivity overall. These are issues discussed in more detail in the embedded video.
- Investment in Education Increases Income. There is a school of thought among investors that requires absolute frugality, funneling every spare dollar into carefully chosen investment funds. While this works for some, there are other investors who would benefit from spending investable funds on further education, the returns of which would be far greater income over the coming years and decades. Investment in oneself is perhaps the most important investment of all, whether or not it is an investment made with money.
- Returns on General Spending. It’s not unreasonable to expect that after 30 years of proper investment allocations and compounding interest, a dollar could be multiplied by ten. When you make general purchases as part of your regular budget, ask yourself “Is this worth 10X what I’m paying for it?” A vacation that costs you $700 might well be worth 10X that amount, because of the rest and experiences it grants you. By that same token, that $4 latte might not be worth the $40 it could be worth 30 years from now if you were to have invested that money rather than spent it. By looking at general purchases for the personal returns they bring you, relative to the financial returns they could present over long periods of time, you’ll begin to understand how every purchase is an investment of one sort or another.
There are lots of ways that we invest in our everyday lives. The way you spend your time, the way you use your money, the friendships you cultivate – it’s all an allocation of resources, an investment. Make good investments, whether or not you’re using these resources in the stock market. It’ll build you a lot more wealth moving forward.