Here’s a secret of mine: I’m not investing, and I’ve added almost nothing to my investment/retirement accounts since 2008.
It’s been hard to do this while hearing common financial advice like “max out your Roth IRA” and “take advantage of compounding returns.” I know those are the things that I should be doing, but I have reasons why I’m “investing” in myself in other ways.
Making the decision I have has been tough, and I’ve wondered lately: Is it okay that I’m not investing even when you I afford to?
Why I’m not investing
Simply put, I’m not investing so I can save to support myself while making my switch from working to freelancing and blogging full time.
While I don’t need to invest a whole lot of money directly into my business right now (as compared to a brick and mortar business, for instance), I do need to provide living exposes for myself while I get my self-employed income rolling, which really starts in May. By doing this I’m essentially paying into the idea that I can run a business on my own, and I can eventually earn enough money to replace a job.
The tradeoff of this approach: I’m working to save $10,000 to finance this transition, and I won’t be able to put any money into investment accounts during the months it takes to save this money. I probably won’t be able to invest for some time after going self-employed, either.
I don’t have a whole lot of knowledge about what other people do to start their own business. In my mind, a lot of people just lay it all on the line, take out loans with their personal property as collateral, and then put their heart, soul, and all their time into giving it all they’ve got. I don’t think this quite applies to my situation.
My goals for this year are to smooth the transition by increasing my side income while I have my job. I don’t have the facts, but I’m assuming this is one of the better strategies that people take. Of course, it would be best to completely replace my job income before quitting (which I’m not on target to do by May), but it’s not always the most practical to do it this way.
Why it’s not okay I’m not investing
I’m not 100% sold that what I’m attempting is a great idea. For going this route, here are the potential consequences if it doesn’t work out.
- Falling further behind and lose out on compound interest. As I said, I’m not investing much of anything now, I probably won’t be in 2012 either, and I’m putting $10,000 more or less on the line with this plan. If it fails, I’ll definitely be worse off financially than I am now.
- Stock market returns are more stable, reliable, and easier to predict. I feel like this is about one-half myth at this point as nothing is guaranteed with stocks, but I feel like I can at least point to the stock market and say that I can predict around 8% annual return over a long period. That’s obviously not true in every year, but it’s probably still more predictable than any amount of benefit I can expect to receive from working on my own.
Why it’s okay I’m not investing
Even though there’s some uncertainty, I think there are some good reasons for doing this.
- Returns could be many, many times greater than the stock market. Not that my goal is to get super rich, but investing a bit in the stock market here and there while I work a job isn’t going to get me anything outside of mediocrity. I’m technically “investing” in something, although it’s not a traditional investment like a house or the stock market. While the returns are unpredictable, success could mean a ROI a lot larger than the stock market produces even in its best of years.
- I’m trying to create a better life for myself. Making this decision comes down to more than just the money itself. Investing in the stock market for retirement always feels like I’m deferring a “good” life until I’m 65. Investing with this mindset may never be sexy, and I’d argue that it’s simply going to lead to a pretty good and maybe not great life.
- I have some side income, and I’ve put a lot of thought and planning into this. This is anything but a snap decision. I planned to quit and try this nine months before I would actually put it into action. I haven’t planned for everything, but it’s not like I just decided to quit my job one day.
- I’ll know if I can pull off working for myself. Working for myself is something that I feel is meant to be for me, and I know that I’ll never be content with a job until I try out the self-employed life. If I fail, my life is far from over and I can just go back to the working world relatively unscathed.
- I’ll put a time limit on my experiment. Just because I’m quitting my job doesn’t mean that I’ll never consider going back. I haven’t decided on a hard deadline yet, but I think it’s fair to give it 6 months of solid effort and then reasses where I’m at. $10k is about 6 months of living expenses for me (and don’t forget I’ll be starting with at least $1k in monthly self-employed income, too). Although I can see it would be hard to go back to getting a job, the lack of money will either make me work harder or will force to me to back to the world of cubicles.
I’m really excited about the situation I’m in, and I think it’s going to be a fun and life-changing experiment no matter what. To me, the consequences of not investing right now seem very small compared to the rewards from investing in my business instead.
Is this a strategy you have considered or would consider? I’d definitely appreciate any advice.
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photo by: CarbonNYC
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