Investing can be as simple or as complicated as we want it to be, the point is that our money needs to be utilized in a way that will allow it to grow and produce yields faster than inflation. Inflation is the reduced value of the dollar over time, so as the cost of living and prices rise, our money buys us less. Now that’s a crappy deal and unfortunately, it’s what we’re up against. There are many different ways and strategies when it comes to investing and it all depends on our goals, our risk tolerance and how hands on or passive we want to be in our investing. There are aggressive as well as passive ways to invest, with even the most passive strategies still having a degree of risk. The most common and simplest strategy for investing for our long-term goals is an employer sponsored 401k or equivalent type of investment vehicles for those of us that are self-employed. As an employee, that type of strategy is the simplest to set up and easiest to stick to with when given the ability of having funds automatically deducted right from our pay checks before we even see them. For the self-employed, it will take a little more discipline to make sure those funds make it that account. That type of strategy is the more passive hands-off approach to investing and the very least we should be doing. Then, there’s the more hands on approach of trading our own stocks and/or bonds, managing our own funds, investing in real estate, etc. Of course, the more aggressive our strategy the more risk we assume, but also giving us the ability to out-pace the inflation game much faster.
Don’t Just Save Money!
Whichever strategy…or strategies you decide to utilize, will depend on your comfort level of risk and effort (how hands on you care to be). The differences vary from high risk to low risk and from very hands on to very passive. The most important thing in all of this is getting the information and/or help you need to educate yourself enough to make the best decision based on your own individual goals and desires. There is no silver bullet or one size fits all approach to investing. The path or vehicle(s) you choose to grow your money should be completely based on you!
The concept of Financeology is that there is not one style, strategy, concept, technique or “way” of doing things when it comes to achieving your financial goals! It comes down to who you are as an individual, what your goals are, what your comfort levels are, what your risk tolerances are, as to how you approach your financial future. Ultimately, you’re the only one to decide how to invest your money. The only way to figure that out is to be curious, seek out professional advice, ask questions, read, study, learn and take action. As you become more comfortable in whatever strategy you start with, you may find your comfort zone expanding and you’ll find new strategies as you grow.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
When you set up your budget, you find ways and areas to reduce your expenses. You get your spending under control, you live below your means, you find ways to increase your income, you get your debt snowball rolling, you learn to pay yourself first to save for your emergency fund and of course…you also need to save to invest! That’s where the “magic” happens. The point of paying yourself first in order to save is not just to hoard your money or stuff it under a mattress, but rather to use that money as a tool and put it to work for your long-term future goals. It’s actually a multi-pronged approach. Each of your different savings funds is separate from one another. Your emergency funds are separate from your investing funds and any other funds you put money aside for, but they all start from paying yourself first.
Your emergency funds serve you in your short to mid-term future when faced with unexpected expenses, so having those funds in low yielding, liquid accounts is fine since the real return on those investments is peace of mind. Once you’ve saved money beyond your emergency funds…that money needs to be used for investing! Investing your money is when wealth creation starts to take place. Financial independence is when your source of income doesn’t come from a-days-work for a-days-pay. Saving money to invest is the first step to putting your money to work for you, which is the essence of building wealth. You can only achieve true financial independence through investing, so don’t just save, save to invest!
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