Irrespective of the current value of their assets, everyone wants more money. As we grow, our needs grow with us, and so do our expectations from life. The more the expectations, the more the goals we have to achieve, and the higher the money we require to achieve those goals and live the life we desire.
There are two basic ways to make money and acquire wealth. One is to get a job and work for money. In that way, our income increases as our experience and skill level increase. The increase in income comes through a better paying job or series of raise in a particular job. The rise in income meets the increase in expectations. The limitation with this way of acquiring wealth is you have to keep working all your life to meet your needs and accomplish your goals. An alternative method is to save a part of the money you earn and invest them in assets that will keep compounding in value into the future. In this way, while you are working for money, money is also working for you. Moreso, a time will come when you no longer work for money, and money is doing all the work.
The latter option is what we refer to as investing.
Saving vs. Investing
Saving is part of your disposable income that you did not spend (disposable income – expenses). If you earn $40,000 every month and you spend only $30,000, then $10,000 is your saving. Investment occurs when you put that difference between your disposable income and your expenses in an interest-yielding, moneymaking asset like a stock, bond, mutual funds, real estate, business venture, etc.
It takes a certain kind of attitude, commitment, and personal finance skills to save money and not consume it all on expenses. However, it also takes a certain kind of attitude, commitment, and personal finance skills to put the money to work. It is easier to lock your savings in a bank’s savings account where it yields paltry interest because you do not want to pursue the knowledge or take the risk of investing your money in assets that grow them.It takes a certain kind of attitude, commitment, and personal finance skills to save money and not consume it all on expenses. However, it also takes a certain kind of attitude, commitment, and personal finance skills to put the money… Click To Tweet
Why should you bother saving and investing your money? What are the reasons why saving is not enough, and you need to put your money into assets that will yield interest and multiply your money? Below are some of the reasons you should consider investing:
Grow Your Money
Investing is the best way to grow your wealth. When you save your money under the pillow, it remains what it is (in nominal value). However, when you put your money in assets that yield interest, the value of your money increases over time. If you invest $100,000 in an asset that grows by 10% annually (compounding interest) for five years, you will have $161,051. In essence, you have made $61,051 in five years, without exerting any effort. If you allow it compound for ten years, you will have $259,374, meaning you have earned $159,374 without doing anything. The average worker in the United States who works a 40-hour week earns $46,800 in a year.Investing is the best way to grow your wealth. When you save your money under the pillow, it remains what it is (in nominal value). However, when you put your money in assets that yield interest, the value of your money increases over… Click To Tweet
When you invest your money, you allow your money to grow even while you are sleeping.
Investing your money will help you achieve your retirement goals. Even if you want to work all your life, you will get to a point when you cannot. Moreover, most people do not want to. When you retire, you have to keep up with your spending patterns without doing any work. To do that, you will need to have a nest egg that is big enough for all the years you will spend in retirement.
Saving money under the pillow or in a savings account will never yield the nest egg you need during retirement. It is by investing in high interest-yielding assets that you can grow your money to the point where you can retire with confidence.Saving money under the pillow or in a savings account will never yield the nest egg you need during retirement. It is by investing in high interest-yielding assets that you can grow your money to the point where you can retire with… Click To Tweet
When you retire, you always attained financial independence. However, it is a great objective to achieve financial independence earlier. Someone might not retire but still achieve financial independence. Financial independence is a condition where you no longer need to work to maintain your spending habits (budget). You may decide to work, but you don’t need to do it. You can choose to leave the job at any time. Financial independence is desirable because it frees you to do the things you love doing irrespective of the pay.Financial independence is desirable because it frees you to do the things you love doing irrespective of the pay. Click To Tweet
In this article, you will find a formula that helps you calculate when you will achieve financial independence with your current savings and spending patterns. Investing your money very early in life can help you reach financial independence early.
Achieve your Financial Goals
Retirement and financial independence are examples of long-term financial goals investing can help you achieve. You can achieve other short and medium-term financial goals when you invest your money. You might have a goal to buy a new car, pay down a mortgage, start a business, pay your child’s college fees without loans, etc. Investing is a high road to the achievement of important financial goals.
Achieve your life goals
Even if money cannot buy happiness, it is an indispensable tool in the pursuit of happiness. We all have important life goals – things we want to do and accomplish in life. Almost everything (to be conservative) you need to achieve in life has financial aspects. If you’re going to become a missionary in a faraway land, there is a financial aspect to it. If you desire to start an orphanage or any other form of charity, there are financial aspects to it. Investing will help you grow your money and provide the necessary financial base for you to achieve your life goals.Even if money cannot buy happiness, it is an indispensable tool in the pursuit of happiness Click To Tweet
Make money work for you
One of the temptations with money is to become its servant. However, as humans, we are not to subject ourselves to the rule and reign of money. Instead, like every other part of creation, we are to rule over it. It is very easy for money to rule over us owing to its importance in daily life. One way to resist the temptation (not the only way or an absolute way) is to invest and allow money to serve you. Investing allows money to work for you, which can give you the psychological impetus to resist the rule of money over your life in other areas. When we see money as a mere servant (though an important one), it changes our perspectives on many things in life and makes us better people.Investing allows money to work for you, which can give you the psychological impetus to resist the rule of money over your life in other areas. When we see money as a mere servant (though an important one), it changes our perspectives… Click To Tweet
Leaving an estate for your children
There was a time when a son or daughter inherits the job of the father and mother, respectively. We no longer live in that time. You cannot give your job to your children. But you can leave your assets to them. We may live in a world where the whole idea of inheritance is not as important as previous centuries, but it is still a reasonable desire for a parent to nurture. Investing will help you leave an estate or inheritance for your children who can’t inherit your job.
This quarter, we will be looking at various exciting topics on investing. The aim of the above is to set the stage for what comes afterward. When we understand the importance of investing, we will gain a deeper appreciation for everything we will talk about this year.
Investing your money is the high road to building wealth and living the life of your dream. It is therefore essential to develop the knowledge, skills, attitudes, and competencies to become a good investor.