Work/life balance is a popular topic among entrepreneurs and employees alike. Basically, it’s about making sure your work doesn’t completely overtake your life and prevent you from pursuing your passions.
Some people allow their entire lives to revolve around amassing money that has no specific goal or purpose. Or they work extremely long hours to provide for a family they rarely see because of those long hours. They strive to earn the income that will allow them to live the life they want, although they may not know what that even means.
I like to flip the script to increase the chances of happiness. Once you figure out what you want your life to look like, you need to determine how to fund that vision. In my experience, investments are a fantastic way to create an income stream that will enable you to create the life you want. Here are a few ways investing can keep you on track to achieve the life you envision, not one that happens to you while you’re chained to a desk.
Investing encourages long-term planning
Most financially conscious people appreciate the guidance and security of a household budget, which enables them to track and minimize expenses. As useful as such budgets are, they’re most effective for controlling recurring and short-term spending. If you’re serious about funding your dreams through investing, a concept called reverse budgeting can better enable those aspirations. In reverse budgeting, you allocate income — often through automated payment diversion — to fund savings and investments first. Reverse budgeting shifts the focus from transitory expenses to achieving long-term financial goals.
Taking this long-term view, the general rule with investments is that the younger you start, the better. If you calculate how long it takes for contributions to double by the rule of 72, the benefits are staggering. A 21-year-old who puts $3,000 in a Roth IRA earning 7% interest will have around $42,000 by age 60. A 31-year-old who does the same thing will have only around $21,000 by age 60.
Planning out your investment start date can also help you feel more secure in other timelines. Buying a home, having children or moving to an area with a higher or lower cost of living will all affect your long-term finances. Estimating how your planned investments could change your finances can help you get a better idea when those milestones can occur.
Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >
Investment prompts regular assessments of goals
Investing has the somewhat underappreciated benefit of encouraging people to review their life goals. If you consult regularly with a financial adviser, you’re likely to attend an annual check-in at a bare minimum. During those regular meetings, your adviser should be asking about whether your goals have changed.
Maybe you were formerly planning on staying in one geographic area long term. When revisiting your investments, you might suddenly feel tied down if those investments — say, rental property or a small-business partnership — tie you to one location. If travel becomes more important in your plans, your investments need to create passive income regardless of your location. Without that regular check-in process, it’s easy to just coast on autopilot when it comes to your investing activities.
So how often should you review your investments, and what do you hope to achieve with them? Given how quickly the market can fluctuate in various industries, I recommend in-depth quarterly reviews. For example, AI-related stocks and the housing market have exhibited substantial volatility in the past six months alone. These changes in the two sectors have occurred for different reasons. If you only perform annual reviews instead of quarterly ones, major opportunities and significant market changes could pass by unnoticed.
Keeping your eyes on the prize
Investments should be considered a means to an end. And that end should, ideally, be the life you want.
Because investments are merely the means, you don’t necessarily need to be excited about what you’re investing in. If you have a few investments that are regular earners and allow the lifestyle you dream about, great.
My first major investment was in a mobile home park. Am I passionate about mobile home parks? No, but it was an opportunity for me to create enough passive income to allow my wife and me to both quit our jobs. And within less than two years, the investment accomplished exactly that.
Investing can be an effective method for achieving financial autonomy and freedom in your location and schedule. It takes a lot of planning and a fair amount of bravery, but having sufficient passive income can help you attain the life you envision, not the one you end up with by default.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
The Problem With 401(k) Catch-Up Contributions for 2024
Retirement Plans New rules governing certain 401(k) catch-up contributions are causing confusion and raising concerns.
By Kelley R. Taylor Published
What Is Inflation?
Inflation has been top of mind for investors in recent years, but what is inflation and why does it matter?
By Charles Lewis Sizemore, CFA Published