Whichever strategy…or strategies we decide to utilize, will depend on our comfort level of risk and effort (how hands on we care to be). The important thing in all of this is getting all the information and/or help we need to educate ourselves enough to make the best decision based on our own individual desires. The concept of Financeology is that there is not one style, strategy, concept, technique or “way” of doing things when it comes to achieving our financial goals! It comes down to who we are as individuals, what our goals are, what our comfort levels are, what our risk tolerances are, as to how we each approach our financial future. Be curious, seek out professional advice, ask questions, read, study, learn and take action.
Saving is for Investing
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.
“In investing, what is comfortable is rarely profitable.” – Robert Arnott
Investing money is something many people shy away from for various reasons, one being that it can be overwhelming. Investing can be as simple or as complicated as you want it to be, the point is that your 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 lousy 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 your goals, your risk tolerance and how hands on or passive you want to be in your investing. There are varying strategies in which to invest from more aggressive to less aggressive, with even the most passive, less aggressive strategies still having a certain degree of risk.
The most common and simplest strategy for investing for your long-term goals is an employer sponsored 401k or an equivalent type of investment vehicle for those 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 your pay checks before you 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 more of a passive, hands off approach to investing which is the very least you should be doing. Then you have the more hands on approach, for example, of trading stocks and/or bonds for yourself, managing your own funds, investing in real estate, etc. Of course, the more aggressive your strategy, the more risk you assume, but it also gives you the ability to out-pace the inflation game much faster.
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