LIFE'S INFLECTION POINTS

It is common to ask, “What would my life have been like if…?” Every stage of life has a financial inflection point. Although a cliche, the famous poem The Road Not Taken is a reminder of how certain choices can lead to a lifetime of ramifications.

It serves as a reminder that the most difficult path can be the most rewarding. It shows us that a single decision can create a lifetime of impact. The path chosen at life’s inflection points can lead to vastly different outcomes. Instead of regretting the decision made, let’s proactively examine some common points where making a purposeful decision results in endless benefits.

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College

College presents many choices, often with two counter balancing outcomes. Should you spend more time studying or focus time on the fun parts of college? Should you choose a career to minimize the amount of college debt or maximize future potential earnings? Each college degree has an ROI as discussed in a previous post. 

This choice between future income and debt becomes a core focus of many college students. The post-graduate burden of student loan debt is a reality for many (nearly 55% of undergraduates have student loans).

How will you handle student loan debt and debt generally?

Although some of Dave Ramsey’s teachings are out-of-date or misleading (not a fact, just my opinion), his views on consumer debt are generally constructive.

It is hard to believe, but people of all ages have student loan debt. At some point, it becomes about the will and effort to pay down the debt. This is the part that Dave gets right. 

The choice to pay down debt is something you won’t regret. The life of someone who never prioritizes paying down student loan debt and someone who focuses on paying it off early will be vastly different. 

Career

It is likely that there will be many career-related inflection points throughout life. No job will solely define you, but each job will undoubtedly be a foundational component of your life.

Early on in your career, you are presented with a clear question. The paychecks start to roll in and for the first time you are making real money.

How will you save and invest?

At this point in life, it is important to remember a dollar’s potential. At age 23 (right about the time your career is really kicking off), $1 has the potential to become $43 by the time you retire assuming a typical market return. This is a conservative estimate.

Just do some math or utilize a savings calculator to create an estimate for yourself. A monthly investment of just $100 can create a significant wealth effect.

Once again, this is only $100. Imagine what a percentage of your income or a larger monthly contribution could grow into. Time is the most important factor in compound growth. A young person is in the perfect position to take advantage.

Compound interest/growth is remarkable. Einstein called it “the most powerful force in the universe” and Warren Buffett attributes most of his success to the effects of compounding. The choice to take action early and invest is important. You will use time to your advantage and make significant progress on the path toward financial freedom. 

Marriage

I believe that this is the most important inflection point in one’s life. There are few greater acts of dedication than committing your life and energy to another individual. Children will eventually grow up and move away. Most friends will constantly circulate in and out. Marriage is unique in this way.

It is a permanent decision and provides many inflection points and possible paths. From a financial perspective, there is a foundational element that will drive all other decisions.

How do you ensure both partners are on the same page financially?

Maybe one spouse loves to spend, and the other loves to save. Or, one person is always on the hunt for the next high risk and high reward opportunity, and the other is more risk averse. Perhaps one partner prefers flexibility and the other stability.

These are common narratives and a surprising reality for many. It can be amusing to see how two individuals of vastly different histories/views with money are often married to each other.

With both people thinking about money in mostly the same way, a couple is on a clearly different path. It’s never possible to eliminate all heated discussions, but being on the same page will greatly reduce the stress and conflict around money. Although focusing on the same money goals and remaining financially united isn’t easy, the couple prioritizing this will be on a clear, upward trajectory.

Children

Having kids changes nearly everything. Few parts of life look and feel the same after kids enter the scene. They are the origin of life’s greatest joys and greatest challenges.

For some reason, kids open up more opportunities to compare your life to the lives of others.

How do I avoid comparing my life and finances to other people?

The extra interactions with other families open up new chances to see the extra nice house or the new car/boat. 

Even the activities in which children participate can sometimes be centered around finances. Jimmy’s family spends countless dollars so he can be a part of a travel baseball team and an AAU basketball team. Or Sally’s parents pay for private piano lessons, private art lessons, and the dance team. 

None of these activities or any activity really are inherently inappropriate, but it is easy to allow a child’s activities to become a major line item on the budget, especially when other kids and families have different sensibilities.

This stage of life requires many decisions about a family’s priorities. Fortunately, these will be based around what is most important to you, not other people.

The person or family that does not play the game of comparison and remains content with life will have a vastly different experience than the family attempting to keep up with Joneses.

Retirement

This stage of life brings about some of the most interesting financial inflection points.

Your wealth has been built to a critical mass and now it is time to transition from saving/accumulation to using your assets for your enjoyment and legacy. From a technical perspective, it is the most difficult to navigate. There are more moving parts and pieces to manage than ever before. 

Because your wealth has grown significantly, the impact of certain decisions can be significant. These complexities are difficult to break down and unique to each individual. Broadly speaking, the transition boils down to a few simple thoughts.

How will I use my income in retirement? How will I craft my legacy?

For diligent savers/investors, there is typically enough income to accomplish all of their retirement goals. Time with family, travel, and hobbies become more of a focus.

The retiree whose sole focus becomes hoarding their assets will be left mostly dissatisfied. The intentional use of money to experience the world or provide for the needs of others provides more satisfaction and positive effect. 

It has been widely researched and now accepted that it is better to use money on experiences rather than material possessions. If attempting to maximize well-being in retirement (and even other stages of life), experiences offer a higher ROI. The time spent on a vacation or activity will provide for lasting stories and memories for you and your family.

In addition to experiential living, using money to support a cause or other individuals is a vastly satisfying outcome for retirement funds. The choice to spend money on others (often called “prosocial spending”) rather than yourself is a proven booster to mental health and happiness generally.

At this stage of one’s life, the choices and inflection points are more transcendent. The impact will go beyond your own life.

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Each stage of life is significant in its own way with a unique set of challenges. A few intentional choices at each point can change the twisting path of one’s life and offer endlessly rewarding and/or satisfying outcomes.

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Do you know someone in the midst of one of these inflection points and processing one of these questions/decisions? Share the post with them and help them out!