If you want to build wealth, become financially independent, gain control over your time, and spend your days having your money work for you rather than you working for your money, you must master saving and investing. Anything you can do to make saving an investing easier is a victory because it accelerates your ultimate arrival at the life you envision for yourself. Saving the first $100,000 is the most difficult part but once you get beyond that threshold, things get a lot easier because your money starts to compound for you as your dividends, interest, and rents pile up.
To help you understand some of the things that I think are important when it comes to saving and investing money, I’ve put together a quick list with my thoughts on why each item matters.
The moment you begin to prioritize saving and investing for its own sake, you’re probably going to make bad decisions and miss out on some of the most valuable experiences in life. For some people frugality becomes a type of sickness; a religious-like asceticism that enslaves them to the debits and credits on their personal ledger.
You probably know what I mean. You see people who always have credit card debt; who always need a new car even if they can’t afford it. They go through life making a good living but hardly ever able to scrape two pennies together unless they’re promising to sell future hours of their life (which is what happens when most people borrow money – you’re quite literally agreeing to give up some of the 27,375 days you’ve been given if you’re a perfectly average person plus interest, in many cases). To add insult to injury, these folks hardly ever think about lifecycle costs or economies of scale. They could live so much better than they do if they were only intelligent about it but impulsiveness wrecks any hope of that.
If this is an area with which you struggle, I’m a fan of a behavioral psychology tool called “gamification”. Effectively, you take the rules, rewards, and mechanics of a video game, board game, or other game and apply it to your personal economics. You make it a personal challenge to find ways to purposely cut expenses by $100 a month and move it into savings, instead, walking home instead of taking the bus or skipping ordering a glass of tea with lunch, requesting water, instead. It becomes its own reward system. There are numerous phone apps, tablet apps, and software programs these days that can do it for you, even allowing you to create avatars that level-up at pre-determined milestones.
It’s worth it. You must master this if you have any hope to enjoy life. You can never experience financial freedom until you have stepped off the consumption treadmill.
Once you slip into the habit of borrowing tomorrow’s income to pay for today’s expenditures, you will begin to loathe money and possibly even your job or occupation. Instead of viewing it as an outlet for your talents, gifts and ambitions, it becomes a series of endless tasks you must complete if you hope to break even at the end of each month.
Educate Your Mind. The More You Know, the More Excited You Get About Saving and Investing Because You Realize You’re Buying Yourself Freedom
There are hundreds of excellent finance, investing, economics, accounting, business and management books in the world. A few hours of well-directed reading each week can have a fattening effect on your pocketbook as well as give you something to talk about with your friends and family. One small example is how fun it is to see the world through the lens of creating passive income; of measuring your annual success through the level of passive income you generate each twelve months. Another is learning how you can get paid in exchange to promise other people you’ll buy a stock you wanted to buy, at a price you wanted to pay. It sounds crazy but it’s true.
Consume knowledge. Amass wisdom. Be a learning machine, always adding to your arsenal of practical, applicable strategies and techniques. A few good ideas spread out over a lifetime, intelligently implemented, can mean all of the difference.
Positive economic incentives can do marvels for productivity, and you may not find it nearly as difficult forgoing current consumption if you know a new pair of Allen Edmonds is in your future. Besides, when you associate a luxury good with an accomplishment, it has much more meaning and value.