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Wealth Tip #14: How Life Cycle Economics leads to Contentment
I completely understand your frustration with the volatile stock markets, high unemployment, and stagnating economy. The future for all but a lucky few looks bleak.
A bleak future does not have to be your reality.
The theory of life cycle economics purports that the best measure of your financial well being is how much enjoyment you receive from consuming experiences, goods, and services throughout your lifetime. This theory shifts from the view that dollars in the bank equals happiness to the reality that how you live and consume, both now and in the future determines your life satisfaction.
Educate, Inspire, and Motivate for Wealth in Money and Life is the tagline at Barbara Friedberg Personal Finance. Life is not about "the number". It is about what you do with the time you have. After all, everyone's life is finite.
The irony of having cash in the bank is that some folks feel they can never have enough and feel anxious and insecure, while others with less, are content.
Human Capital is the Starting Point
Your earning power or human capital equals in the millions of dollars over a lifetime.
Every decision you make to consume today, impacts your ability to consume in the future.
You want a nice flow of income today, tomorrow, and in retirement.
Spend every cent today, and your future will be poor.
Save and invest most of what you earn today, and your present will stink.
Life wealth and contentment revolve around your ability to balance spending, saving, and investing throughout your lifetime.
How to Proceed
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Adjust your thinking. Pay attention to what really gives you satisfaction. Evaluate the financial cost now and in the future, of your consumption decisions.
- Learn to weigh each purchasing decision with the value you gain. Are the $100.00 shoes worth giving up $761.00 in retirement?* The answer is personal, and only you can decide.
- Match up your time and money with what you value. Don't spend money on stuff that doesn't give you a fair return.
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Think about those millions of dollars you will earn over your lifetime. Commit to putting a percentage of your lifetime earnings towards your future. Live for now and for later.
- How to preserve your future lifestyle. The best way to build wealth for the future is to commit a portion of today's earnings to a workplace retirement account. Divide your contribution among 3 investments;
- A broadly diversified stock index fund such as Vanguard Index Trust/ Total Stock Market Index Fund.
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A broadly diversified international index fund such as Vanguard Total International Stock Index Fund.
- A bond index fund such as Vanguard Inflation Protected Securities Fund.
Put a portion of today's earnings, every pay period, into a retirement fund for the future.