I think a lot about investing. I learned in high school that investing while you’re young is one of the best moves you can make from a financial perspective. The earlier you start investing, the more time your money has to grow. For a while I thought it made sense to live as frugally as possible, and to save as much as possible, in order to maximize my financial payoff in life. I had a realization, though, that changed this attitude.
Think about a really good memory. Maybe it’s a memory of your family gathered for thanksgiving dinner, or maybe its of a fun date you went on. Maybe it’s a memory of the time you found five dollars on the sidewalk. Who knows. Doesn’t thinking about good memories make you feel good inside? I would say that in my experience, remembering a good time that I had is almost as enjoyable as having the good time itself.
This year, I threw a birthday party for myself, and invited a bunch of friends from out of town. I rented a house on a lake for a weekend, and even sprung for a Jet Ski for the day on saturday. Five of my 8 siblings were able to make it out, as were a substantial number of my friends, from grad school, college, and high school. I saw some people I literally thought I’d never see again, and we had a great time. I will probably remember that weekend on the lake for the rest of my life. When I think of it, I can’t help but smile and feel good inside. It’s not just a fleeting happiness, like the feeling you get from eating a good filet mignon, It’s a feeling of contentment and metaphysical satisfaction with life.
That weekend cost me money; around $1,000 after all was said and done. A slightly younger me would have argued that spending $1,000 on a birthday party for yourself is a waste of money and irresponsible. An older (and I’d argue wiser) me would respond that the weekend was not just a way of having fun in the present, but an investment in the future because of the value of the memories it creates.
Let’s suppose that I remember my birthday party 4 times a year for the rest of my life. They say you can’t put a price on memories, but they say a lot of things that aren’t true, so I’m going to put a price on the memory and say that the good feelings I get from remembering that weekend are comparable to the good feelings I’d get if I found $20 on the sidewalk. That means my $1000 investment pays me $80 a year for the rest of my life. If I live another 50 years (which seems like a reasonable bet), the memory will pay me $4,000 over the course of my lifetime. Not bad. Is it possible to do better? If I had put that $1,000 into the stock market, it would not be unreasonable to assume that my return would average close to 8% annually. That works out to … $80 a year. It’s true that if I invested that $80 back into the market, my annual return would increase beyond $80, but I’d be giving up the momentary satisfaction of having that $80 now.
I’m not arguing against savings – I think it’s important to prepare for large future expenses like retirement and your childrens’ education – but I think there are diminishing returns to having large amounts of money, and that spending even non-trivial amounts of money now in order to create great memories that will last your entire life is also a great idea.