A particularly frugal friend of mine is obsessed with compound interest. With any financial decision, he doesn’t think “Is this item worth $50 to me,” he thinks “With compound interest, that $50 will be $100 when I retire and I’m old and broke and lonely, is this item worth $100 to me?” Unsurprisingly, he almost never spends any money on anything. While I don’t think it’s good to assume you’ll be old and broke and lonely (why not assume you’ll be old and rich and surrounded by loved ones?), it is an interesting thing to remember that, with a well chosen index fund or even a simple savings account, money grows. And especially during this giving season, it’s important to think about the nature of what we give and why.
Giving savings bonds sounds terrible. It seems like a scene from an 80s christmas movie where the “boring” relatives give savings bonds while the cool uncle gives a skateboard, but why, exactly, is the gift of savings a terrible thing to give? The purpose of a gift is to express your love for other people and to give them things that will contribute to their life. Any form of investment savings that will grow and prosper over time is going to benefit them far more than a gift that might fade away. I think there is some fear that you are being “condescending,” thinking you know better than someone what is good for them, but so what? Maybe you do know better than a 6 year old what is good for them. Maybe that’s OK. Maybe you could combine a savings bond with a toy so they have both the initial hit of dopamine from getting a new toy to play with, and a long term financial instrument that will benefit them later in life.
All of your gifts probably can’t be savings bonds or contributions to savings accounts or setting up an index fund in someones name. That is kind of lazy. But why can’t some of your gifts be something that will appreciate in value and contribute to their future?
Another thing to consider is if you are saving enough for yourself. While December is always hard and we all end up spending more than we planned (I spent twice what I expected to this holiday season as a christmas party got out of hand and gifts were more than expected), it’s always interesting to remember that somehow the money is there and we make it through the holidays. If you did like many of us and spent more than you planned, but you are still here and breathing, maybe it’s time to up your savings levels in 2017. If you could afford $500 in extra spending in december for holiday events by cutting back here or there, maybe doubling your savings rate, from 5% to 10% and making those other cutbacks permanent is worth thinking about.
Or, if you don’t save now, giving yourself the best gift of all, starting a savings account. Automatically deduct it from your paycheck, or set up a regular withdrawal if you get paid irregularly. After the generaosity of the last month, it’s time to be nice to yourself and consider savings now as a gift to your future self in 2017. So that when you are old and surrounded by loved ones, you’ll be living in the future off money you put aside today.
“Occasionally, Logix will invite guest bloggers to post on assorted financial topics. These posts may or may not represent our views.”
