It is no secret that inflation is rising as it has never been before. In addition to this, wages are not rising as much as the inflation. This leads us to making wrong decisions with our finances. More dangerous than before when it comes to our personal finances because saving money is a tradition of human beings. You have to be really certain about what you are doing to avoid mistakes. You might have thought “you are very wrong” when you see the title. However, there is a point as to what I want to talk about.
Saving your money is not the solution to financial freedom. But why? Why do I say this when everyone is saying the opposite? Because the conservatism about everyday life could spread to your personal finances, too. To look at it into perspective, let’s look at how much your money grows when you save your money, aka put your money into your bank account that pays some or no interest.
Let’s say that your bank pays no interest, and you have $10,000 in the bank account in 2010. You did not touch this money for ten straight years. If you are living in the USA, the long-term inflation rate of the USA is around %3. In 2020 (which is a 10-year timespan), your money will be worth $7,440. Meaning, you can not buy everything with $10,000 in 2020 that you were able to buy back in 2010.
“Investing is not about saving money, it is about making money from what you have saved.”
What is the Difference Between Saving Money and Investing?
Many people fail to actually invest with their money and let it sit in their bank account for eternity until that money is rubbish. We have to understand that the only reason to hold cash is for the emergency fund which you might need in case of an emergency (duh). Other than that, all of your money should work for you, you should not work for money %100.
The point here is to find out what kind of investment do you want to make, aggressive, defensive, or something else? People are afraid of the idea of investment because investments are dangerous and you could lose all your money. This is not true all the time if you do the right moves. However, 99% of the time, it is a massive possibility.
The fact that you can lose some money does not change the fact that your money sitting in the bank is decreasing every day. You have to act, and investing does not have to be risky, and as statistics shows, if you hold for the long-term, many people (more than %90) did not lose a single cent.
Deciding to Invest Rather Than Saving Money
After understanding that saving money is not going to do any good to you, it is now time to understand about investment paths. You first need to understand how you want to invest your money. If you know well about the opportunities in front of you, you can make use of your money better. Take a look around you first of all. This is where your journey will begin.
You must understand well about these steps if you want to make the best use. However, understand that each individual’s needs are different and it might not fit you 100%. What you need to do is to read through these details and steps and see what might work for you, your needs, your income, and other things.
Choose your strategy
When you actually decide to do something with your money, you need to be careful. This is the tricky part because if you don’t choose well, you can actually lose your money (either all of it or some of it). Now, you might say “what?” after reading the part above this chapter. What we are talking about is to hold for the long-term and not trade for short-term.
Trading or investing for short-term is the thing that will get you to lose your money. That is the reason why you must be content with your strategy and do not change ideas in between thinking you want some quick buck. If you are not lucky as hell, you are not gonna get rich quick and even if you do, you probably do not have the financial literacy to hold on to that money. You must learn it on the way, earn slowly.
“Indeciveness is worse than making the worse decision possible.”
Place a certain amount from your wage and stop saving money to the fullest
What many people can’t do or just do not want to do is to place a certain amount from their monthly income to their investment accounts. None of us got any kind of financial education, it might feel like spending money when we are transferring money to our investment account and investing. However, it is actually investing, not spending.
It should not be regarded as spending from your wage, you are just saving up money while it is earning an average of %10 interest every year. Feels amazing, right? Of course, there are risks involved, but there is risk in everything. When you put your money in your bank account, you have a %100 chance of your money losing its value. No matter if there is a historic pandemic happening or not.
Considering all this, you have to come up with a budget for your monthly income. Maybe even put it in an Excel sheet and save everything and make a plan for yourself. And every month, even before paying your rent or utilities, put that money into your investments, may it be stocks, bonds, ETFs, whatever you have chosen, put your money in your investment.
In the book “Rich Dad, Poor Dad” the author mentions this spesifically. He says that you should you invest the moment you get your paycheck. The rest will be your income. This will make you hustle more and find more ways to earn more money to live off the life you want.
Let it ride
When we invest our money, especially in stocks, we tend to check them every moment to see if you are miraculously rich under a single minute. Do not do that, let your investments ride for years, and decades. They will produce more money for you in the future than you have. You will have better things than you would have if you did not invest. The key here is to let it ride and stop looking at it anytime. This is the mistake that many people does, looking at their investments. I can not emphasize this enough,
Once you master the skill of letting it ride and making it a life-long skill, you will win the investment game. As Kiyosaki says, you will “get out of the rat race” pretty quickly. There are several steps to not saving money and investing. You have to learn and excel at every one of them to successfully do this. Your money is in better hands when you invest it. Because you will give your money to business owners that can handle billions of dollars (you are putting your money into billions of dollars worth companies). I think this is better than letting them sit there in the hands of a middle-class person, right
What Should You Invest In?
There are a lot of things that you can invest your money. Before making the decision or choosing that certain path, you must research what you can invest in. If you know everything, you can make that decision better. You can invest in anything you want and the most important thing is to invest in something that you understand end enjoy. What you invest in is not important as long as you opt for something that you can follow and change when you need it. Let’s see what those methods are.
Stocks may be an important component of your investing strategy. They are also extremely popular for people to ivnest their money in. Investing in various firms may help you develop your savings, safeguard your cash from inflation and taxation, and optimize your return on investment. Before investing in the stock market, it is essential to understand that there are dangers. It is important, like with any investment, to know the risk/return connection and your individual risk tolerance.
Long-term equities returns have historically outperformed cash and fixed-income assets such as bonds. Stock prices, on the other hand, tend to grow and decrease over time. Because stock market swings tend to flatten out over longer time periods, investors may wish to adopt a long-term view for their equity portfolio.
Bonds are an essential component of any investing portfolio, but they have lost popularity with certain investors. For many years, many people were convinced that investing in stocks was the greatest way to make money in the long run. Even in the aftermath of two stock market disasters in the last several decades, that thinking continues. They might have a point but bonds really provide an almost-risk free income. Those who dismiss the importance of bonds may be passing up an opportunity to profit.
Even though bonds offer an extremely good and risk-free opportunity to make money, the money you will possibly make is not much. They provide one of the lowest values out there among other investment chocies and it takes years until you can get your hands to your capital again, most of the time.
There are various advantages to investing in real estate. Investors may enjoy consistent cash flow, good yields, tax benefits, and diversification with well-chosen assets—and it is feasible to use real estate to develop wealth. Despite all of the advantages of real estate investing, there are some disadvantages. One of the most significant is a shortage of liquidity. A real estate deal might take months to conclude, as opposed to a stock or bond transaction, which can be finished in seconds. Even with the assistance of a broker, finding the proper counterparty might take several weeks.
Still, real estate is a separate asset class that is straightforward to grasp. It could also improve an investor’s risk-return profile. Real estate provides cash flow, tax benefits, equity development, competitive risk-adjusted returns, and an inflation hedge on its own. Real estate may also add value to a portfolio by reducing volatility via diversity, whether you invest in real properties or REITs.