Save and Invest
Put aside cash from every paycheck.
The primary rule for building wealth is to develop a habit of saving money. The second rule is to spend less than you make. Saving is more important than spending in the current framework of the U.S. economy for three top reasons. First, savings are the foundation stone of building capital. Second, savings increase one’s awareness of expenses. Third, savings can be invested which allows one to increase wealth without directly working to attain it.
Saving is the Foundation of Wealth
Save money each week. Make it a habit. If your income varies, put aside more during the flush weeks and less from the tight paychecks. Even just ten dollars per week becomes $520 over the course of a year. That is enough to begin investing in the stock market. As the nest egg grows, don’t settle for the minimal interest rate offered by bank managed savings accounts. Bank backed savings accounts don’t keep pace with inflation.
In the capitalist system, it is possible to make money increase even faster than the rate of inflation with little personal effort. One can “buy low and sell high” with stocks starting as low as two dollars per share. A safer bet for most new investors is to find a mutual fund with a low minimal investment.
Consistent savings and investments in the stock market improve creditworthiness. A higher credit rating reduces the interest rate paid on any consumer loan from auto loans to credit cards to home mortgages.
People who are in perpetual poverty have not learned to save money.
Saving Increases Financial Awareness
Many of life’s expenses are routine. It is relatively easy to set a weekly budget for groceries, incidentals like soap, and for fun such as a lunch out or morning coffee with friends. Put aside a set amount for savings each week as a function of one’s budget. However, most poor people remain poor because they don’t plan for larger cyclical expenses ranging from seasonal expenses such as shoes and clothes to unexpected health challenges and unexpected car or home maintenance issues.
The goal with saving and investing is to not touch that money. Let it grow without withdrawing from it. Don’t listen to any advice to use savings to cover inevitable expenses such as car repairs or new prescription medications. Meet life’s challenges with the active portion of a budget, not from the savings.
Some recommend paying off credit card debt before focusing on saving and investing. This is short sighted. A smart investor can reap greater income from wise investments than the interest rate paid on a consumer loan. Maintaining a substantial savings and investment account will reduce the interest rate on consumer credit.
Finally, a nest egg of money exists provides peace of mind that only financial independence can provide. Of course, pay off all loans, with the possible exception of a low-interest mortgage. Eventually, the savings and investment amount may be large enough to borrow from oneself for a new car or other major expenses.
Create a desire to save money. Watch investments grow over time. Build an awareness of managing personal expenses to build wealth rather than to remain a prisoner of bank loans and government social programs.
Capital Markets
The advent of electronic money transfers and automated investing has made the stock market accessible to all with a low entry investment. Save money and put it in an account where it can grow with little or no effort.
Bank savings accounts provide a secure FDIC insured option, but money placed in a bank is unlikely to grow at the rate of inflation. Better is the retirement account option. Some employers offer matching funds for a minimum investment in corporate sponsored accounts. There are many options for IRAs or 401k accounts, even as there are many options for education savings accounts for one’s children. All of these options typically offer a higher rate of return than a bank-based savings account.
Once a retirement account is set up, it requires little effort. It is possible to set up a specific amount to be direct deposited out of a paycheck.
For someone who wants to take a greater risk with their savings, direct investment in stocks has never been easier. Set up a stock trading account with a no fee organization and begin learning about how stocks grow. Learn about dividends and stock splits and different series of stocks which have different valuations and levels of security.
Access to capital markets, i.e. the stock markets, is a way that everyone in the capitalist system can build wealth. Socialist government systems rarely allow capital markets the freedoms found in the United States. Communist systems have replaced capital markets with government control.
Poor and disadvantaged individuals who believe that a socialist or communist system offers more to them than a capitalist system are ill-informed. Capitalism has built greater wealth for more people than any other government system in history. Ever.
It is easier than ever for everyone to participate in capital markets.
Unfortunately, there will always be poor people because some never develop habits of saving or of self-control over expenses.
Save Now
Tired of living on the edge from paycheck to paycheck, of always being in debt, and of being exhausted by chasing after every dollar, then begin saving now.
The habit of saving money is critical to building wealth. Avoid debt, when possible, but never avoid saving. Savings will decrease consumer credit rates. Savings will provide a bulwark for any once-in-a-lifetime emergencies. Perhaps most important is that savings will increase peace of mind, knowing there is a backstop on financial failure.