Saving VS investing, which one should you do? Well, the first thing I think you should know is that it should rarely be just one or the other.
Growing up, I heard a lot of talk about saving money. It’s something that’s been drilled in me from a very young age when I was told, you know, I should just spend all my money 🙂
I should save some for a rainy day or should save some for retirement or college, or whatever big thing I saw coming up on the horizon.
However, I never much like saving money, because it always felt a little bit pointless. It felt like well, I can either spend it now or I can spend it later. And even if I save it until later, I’m not going to have more money.
Of course, it’s more fun to spend your money now we get more instant gratification. And so that made me not want to save money. And I was really bad at saving money for a really long time.
Even though I now have a deeper understanding of the importance of saving money, I can still relate to that feeling that I used to have to save on its own is kind of futile, you can either be poor now or you can be poor later, you can not spend that money.
Now you have it later. Or you can spend it now and not have it later. And saving the money isn’t really going to increase your wealth or make you become rich. Of course, that’s not to say that we shouldn’t save our money.
Saving money is important because sometimes stuff happens in the future that we didn’t expect. And we need to have some money to fall back on. So it’s good to save, especially any extra money that we have. Now for those rainy days.
In the future. However, saving on its own is never going to make you wealthy, even if you’re really good at saving. Now, unless you have a very high paying job and you save a lot, you’re never going to become wealthy by saving alone.
On the other hand, though, you can’t invest only either, you can’t invest unless you have something to invest. And so saving is a necessary part of that equation.
“Big Picture how this works is we need to save money so that we have money to invest”.
But then we need to invest money to grow our savings, and in turn, build our wealth. Whenever we make money, we pretty much have three options for what we can do with it.
Spent, Save, or Invest?
First of all, we could spend it Second, we could save it, and third, we could invest it.
Now comes to Save or invest?
If we spend it then we will have something in hand, but we will no longer have the money. And if that thing that we purchase is something that we would really value or really help us in our lives, then that might be the best choice.
But as Will Rogers said, too many people spend money they earn to buy things they don’t want to impress people they don’t like. And that’s definitely a trap that is very real. And that we want to avoid.
Now as for the other two options, saving and investing. As I just explained, neither one makes all that much sense on its own. Saving can’t make you rich and investing is impossible if you haven’t saved in the first place. So we need to create a plan of how we can do both of these effectively.
How to Get started?
it’s all well and good to understand that both saving and investing are critical. But it can be awfully hard to get started, you might have no idea where to invest your money or how much money to save.
Now, first of all, since you can’t invest until you have saved some money to invest, you have to start with saving, you have to start by setting a little bit of money aside every single month so that you eventually accumulate enough to actually make a substantial investment.
Make a Plan
But then the next thing that you need to do right away just starts planning your investment. Because if you don’t start planning now, then you’ll probably put it off indefinitely, you’ll start procrastinating on it and it will become one of those things that you tell yourself over and over again, you’re going to start doing but you never get around to actually doing.
You need to make a plan of what you’re going to invest in how much you’re going to invest. And when you’re going to do that you need to put on the calendar.
Now I know that right now, you might have no idea what you could invest in, when you hear the word invest, you might only think of one option, and that is stocks or stocks and bonds, you might have no idea how to get started with that. And you might feel like that’s really risky.
I’m going to share with you several other ways that you can invest, as some of which have much higher returns and much lower risk. Okay, so at this point, you’ve started saving some money every month, and you’ve made a plan of when you’re going to invest in what you’re going to invest in. So now you can use that information that decision you’ve made to inform how much money you should save. So let’s say that you were just going to buy stocks and you decided okay,
in three months time, I am going to buy 100 shares of this specific stock or I’m going to buy into the s&p 500 For this many dollars with a stockbroker, however you decide you’re going to do it that can then inform your savings goal and you can say, okay,
I need to save $30 or each month, I need to save $100 or $500, whatever it is so that you actually reach that goal in the time that you have given yourself to reach it. And you can successfully make your first investment.
Always keep in mind that baby steps are often the best way to accomplish big goals. If you keep waiting until you have 10s of thousands of dollars to invest, then it’s entirely possible that you’ll never accumulate that much money.
you’ll never make your first investment and you’ll never start to get that snowball effect happening. Once you’ve figured out how much you need to save every month, the final step that you can take to ensure that this actually happens is to pay yourself first.
The fact is that if you wait until the end of the month to set aside that money that you plan to save, chances are there won’t be any money left to save. So instead, whenever you get your paycheck, whenever you make a buck just immediately set aside that amount of money that you have ahead of time planned to save so that you can later invest it.
Now, of course, you always have the option to choose either a percentage of your income or a specific dollar figure to invest each month. Personally, even though my income fluctuates quite a bit from one month to the next, I found it’s a lot easier to be consistent with my savings goals if I choose a specific dollar amount, and I set that aside every month.
However, for some people,
it might make more sense to choose a percentage, because that can help you to account for those months when your income might be higher or lower for any given reason.
And here is another quote that just reinforces this point, that savings alone will not get you to your end goal. And this quote is from Robert G. Allen. And he says how many millionaires Do you know who’s become wealthy by investing in savings accounts, I rest my case.
And so that just kind of goes to show that simply socking your money away either under your mattress, or even in a low yield savings account that’s paying you perhaps a percentage point a year and often even less than that, it’s not going to do it’s not ever going to make you wealthy, and it’s probably not going to create financial freedom for you. All right,
Investment Options we have
let’s talk about some of the different investment options because I know that at least for me growing up, there was only one investment option that I was really aware of. And it seemed scary and foreign and very risky. And so I didn’t invest for a long time. And that option I’m talking about, of course, is stocks and bonds. And it just seemed like a foreign language.
So I’m going to share with you the different large categories of investments that you might want to consider. And of course, there is much more information that could be said about this much more, you can learn about each of these different options and different subsets within each of these larger categories.
But I hope that this just helps to get the ball rolling in your mind so that you understand all of the different options that are out there.
so the four biggest categories of investments are
- stocks and bonds,
- precious metals,
- businesses, and
- real estate.
Now, each of these different types of investments grows your wealth in slightly different ways. Of course,
if you buy stocks, then you may be paid dividends on that stock if that company’s value increases, or you can later sell that stock and perhaps earn a profit if the price that you sell the stock for is greater than the price that you bought it for.
On the other hand,
precious metals certainly aren’t going to pay you dividends, but you can buy them and hold them for a relatively long period of time. And the price of precious metals tends to go up over time, you can make money that way.
No business is perhaps the wildest of cards in this pile of different investment options. You could either invest in your own business by choosing to start a business and investing some initial startup capital into that business.
Or if you already have a business, you can invest in either advertising your business to get more customers, improving your systems, or new machinery or equipment in your business so that you can handle larger orders.
There are many different ways that you can spend money in your business to be able to grow your business and make more money with your business.
You also could choose to invest in someone else’s business. This is similar to what’s happening when you buy stock. However, here I’d be talking about a company that isn’t already being traded publicly.
with real estate, even in that one category, there are actually many different ways that you can invest your money and earn income from it.
You could choose to purchase a rental property and then make money every single month from the rental payments if they own above your monthly expenses on the property, you also could invest in a property, wait for it to appreciate, and then sell it later, you could invest in it and fix it up and then flip it and make a profit that way.
There are many different ways you can profit from a real estate investment.
- difference between saving and investing, which one you should do? And of course, the answer is you really should do both,
- a really simple plan for getting started, first of all, by saving money, because you can’t really get started with any of this unless you save some money first.
- creating a plan of how you’re going to invest using that to inform how much money you’re saving every single month.
- committing to paying yourself first every single month.
- some of the different types of investment options that are out there.
- Now I just want to wrap this all up with one more quote. And this quote is from Warren Buffett, and it gives you some big picture investing strategy advice. And this specifically applies to the stock market, but it applies to almost any different type of investment that you might consider.
Warren Buffett says,
I will tell you the secret to getting rich on Wall Street, you try to be greedy when others are fearful. And you try to be fearful when others are greedy.
So basically, this all comes back to that principle of when everyone sees a good opportunity. Chances are, it’s not really a good opportunity. It’s too late for that opportunity.
Too many people are already pouncing on it and it already has gotten expensive. But on the other hand, when there’s a new opportunity that people are still seeing as risky, that’s when it’s going to actually be a good deal and that’s the right time to buy.
Now of course this advice comes with all sorts of disclaimers. I am by no means a financial advisor and I highly recommend that you speak with a qualified professional before making any significant financial decisions or choosing to invest in any opportunities.