Building Wealth through Savings and Investments
A penny saved is a penny earned, right? Well, not exactly. A penny saved now, will be worth more than a penny later in life.
Saving money is so important, and here are some reasons why. Over time, that money will grow and become more valuable if it is invested and taken care of. When saving and investing, you need to think more long-term. Funding a large long term savings account doesn’t happen overnight.
First Things First
Building a long term savings account should be your first priority in your long-term plan. With out any savings, you won’t be able to make any investments or take advantage of any financial gain situations, such as buying stock at the right time.
Your savings account is an account that you should build up over time for big expenditures and investments, and for use in a crisis if needed. It is a fail-safe backup that you can utilize in order to leverage your financial situation. Because of our habitual spending and life expenses many of us struggle to maintain a good savings account balance.
Here are some great tips on how to become a long term saver and investor.
You don’t need to do anything drastic in order to build up your savings account. You also don’t need to overhaul your life in an uncomfortable way to get results. All you have to do is establish good patterns and make small sacrifices in order to add more money to the fund. We naturally fall into certain habits and patterns, which prolong our ability to save; addressing these issues is a great way to get ahead.
First of all, consider taking an affordable percentage of each paycheck to your savings account. Even better, arrange your online banking to automatically transfer that amount to your savings account each month. By doing this, you won’t be tempted to spend that money.
You also can consider dropping some luxury habits. For example, getting a smoothie or coffee every morning before work can cost you thousands of dollars a year. Instead, consider switching to a cheaper brand in order to spend less and save more. Put that unused money towards savings instead. Your future self will thank you later! Slowly but surely your efforts will begin to add up over the course of time and come out to something greater.
Saving vs. Investing
Some people view these two words as being very similar, when in fact, they are two very different things. Knowing the difference will help you be more financially stable in the future. You will need both savings and investments in your lifetime.
A savings account provides a safety net of money that is easily accessible to you in a time of need. This could be money in a bank account or even cash under the mattress.
An investment is money that is being used to generate more money for you while it gets invested. The smarter the money is invested, the more money you can accumulate.
Stocks, bonds, real estate, and private businesses (private equity) are all examples of investments and can be some of your best long-term investments.
The key to the best long-term successful investments is to split up the funds into different investments. This is called asset allocation and means you won’t risk losing your entire investment if one of them fails.
Think of it like a pie chart. If your whole circle is in one real estate property, and it burns down, then you lose your whole pie!
Now imagine that you have a small portion of your pie in that property, a slice in a business, a large slice in a 401(k), and another large slice in separate stocks. If that property burns down and you lose that investment, it is just a small piece of your pie.
Always do your homework before making an investment, consult with a professional if needed to make sure your money is safe.