Invest for Tomorrow and Today

I recently read stories about two people who took entirely different approaches to their finances and investments and, as a result, ended up in two entirely different places. I’ll take a leap here and say that neither result is what you want. Here are their stories and my suggestion for a third, better approach, to enjoying today while investing for your future self.

First, Grace lived what appeared, from the outside, to be a sparse, meager existence with no frills and little, if any, fun – at least the way most of the people I know would define fun. Orphaned at age 12, Grace never married, never had any kids, lived most of her life in a modest, one-bedroom house and worked her entire life as a secretary. (And, yes, back when she worked they were still called secretaries) Her sparse lifestyle made the revelation upon her death in 2010 that she had left $7 Million to charity all the more surprising. $7,000,000? Where the heck did that come from?

Well, there wasn’t any fascinating story of a get-rich quick scheme or an inheritance. Grace lived beneath her means, not much to begin with, saved and invested it and saw it compound for 80 years by investing in the stock market. She was the epitome of the Millionaire Next Door. The only problem, in my opinion, is she never seemed to enjoy the fruits of her good habits. In fact, even if she had no desire for worldly possessions or adventure, she didn’t even experience the joy of giving all that money away since it went to charity after she died. What a shame!

Now, the story of Richard. As the father of a friend of mine used to say when he screwed up, “Well, at least you can serve as a bad example.” Richard is, indeed, our bad example. After reaching the pinnacle of his profession – a profession that should have taught him better – as head of one of the major investment bank’s international units, he retired in his 40’s. Ostensibly to pursue personal and charitable interests he apparently only focused on the personal. Two homes – one of them 20,000 square feet with a $66,000 per month mortgage – and a lavish lifestyle led him in the opposite direction of Grace. So, the same year the former secretary died and left $7M to charity, Richard the Harvard-educated investment banker, declared personal bankruptcy.

Well, the middle ground here is as big as Texas so where should we aspire to land? If you’ve read the description of this blog you already know I subscribe heavily to the ethos of the Millionaire Next Door.

Wealth is not the same as income. Wealth is what you accumulate, not what you spend. If one earns a high income and spends it all, one isn’t getting wealthier, just living high. So, those of us who live beneath our means, save our money and invest properly get wealthy the old-fashioned way: steadily, over many years.

My Suggestion

Incorporate short-term, or even regular, goals into your financial plan. Recently, some clients wanted to include saving for every-other-year international trips. Great idea! So, first we determined how much they should pay their future selves – for retirement, etc. Then, we included a regular contribution to a separate account for their trips. A separate account means they won’t dip into it because it’s marked for travel. And saving a relatively small amount but, on a regular basis, means it will add up to their goal of a major, overseas trip when it’s time to go.

Don’t be Grace and surely don’t follow Richard’s lead, invest for tomorrow and today at the same time. After all, most of us won’t accumulate Grace’s $7 Million without planning to do so. Then again, maybe $5 Million is enough for the future and we’ll plan for some great experiences along the way.