Wednesday, February 01, 2012

Saving Money is Like Having a Baby

I was just thinking that saving money is like having a baby, in some respects. I don't know how far I can stretch the simile; bear with me. Tonight, I bought a money order to put money away in a brokerage account, specifically, ShareBuilder from ING Direct. It is not much; but, saving money is better than not saving. This got me to thinking about the similarities with having a baby.

There Is Never a "Right Time" to Do It

Early on, my wife and I thought about when to have children. When would be the "right time". As best as we figured, there really is not a right time. There are better times than others; but, considering it's a lifetime commitment, the good times and bad times average out. You could be on sound financial footing when you choose to have a child, only to struggle for a few years after losing your job or suffering some disaster.

The key is not to have a great starting point. Rather, one should strive to have a good average lifestyle during  your young one's childhood.

When it comes to finances, you can't really time the market. Every reputable broker will tell you about dollar cost averaging. You put away money during good times and bad. Buy and hold. And, so on.

As a side note, I'm trying to avoid using the word "investment" when it comes to setting money aside in the markets. An investment requires a pre-defined purchase cost, term, and sale price. Investors know how much money they will get out before they put their money in. Most of us put money in brokerage accounts and hope the markets rise; that's a savings account, with risk.

Back to the subject, by putting off the time when you have a child or start saving money, you are robbing yourself of time to spend with a new family member, or robbing yourself of capital gains.

It's About Discipline

Parenting and investing are both largely about discipline. In the first instance, you need discipline to allow yourself to put down what you are doing and pay attention to your child when he or she is trying to get your attention. There is a discipline required in maintaining your composure when they are having a meltdown late in the afternoon for having skipped nap time.

Saving money also requires a certain degree of discipline. You must be willing to set money aside through good times and not so good times. You must avoid the temptation to borrow against your savings when you want a big ticket item. You must not freak out when the market plummets and your portfolio value diminishes.

Everybody Does It Differently

One rule of life to remember is to never tell anybody how to raise their child; not unless you are itching for a fight. When it comes to finances, things are not that much different. Everybody has different goals and tolerance for risk. In addition, there are other considerations that are very particular to an individual.

It's generally a good practice to seek as much information as possible; but, ultimately, how you execute on that information is entirely up to you. You may succeed in some instances; you mail fail at others. The trick is to learn and learn to do it better.

Eye on the Prize

When it comes to finances, the ultimate goal is to have a nice amount of capital stashed away to be able to retire comfortably. For the inexperienced in finances, the goal is to have money now and enjoy it to the fullest, giving little thought to the future.

Parenting is somewhat the same. Many parents put way too much emphasis on spending their children in their youth that they do not think about the long-term. Eventually, children grow up; and, they must be worth something society values, not you. Your goal is to have a child that will be a great asset to the world. Spoilt children will likely become miserable adults that inflict their own misery upon the world. The goal with children ought to be to mold them into a net gain for society rather than a net minus.

We focus on the small child as a status symbol when in reality the grown child is far more impressive. Similarly, your portfolio's current value should not be your focus; rather the plan to turn your savings into something formidable in the future.

I had some other thoughts on how saving is like having children; but, their memory fails me at the moment. Suffice it to say that when it comes to saving or raising children, the earlier, more disciplined, and methodical you are, the greater the long-term gain. Timing is for chumps. Do it; and do it right. It pays off in the end.
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