“Poor people see a dollar as a dollar to trade for something they want right now. Rich people see every dollar as a ‘seed’ that can be planted to earn a hundred more dollars … then replanted to earn a thousand more dollars.”
T. Harv Eker, Secrets of the Millionaire Mind
Saving and investing are often used interchangeably, however, they are two entirely different things with different purposes and roles.
What is the definition of saving money?
Simply put, saving is putting money aside on a regular basis in safe and liquid assets with little or no risk (meaning they can be sold or accessed in a very short amount of time, at most, a few days).
What is the definition of investing money?
“Investing money is the process of using your money or capital, to buy an asset that you think has a good probability of generating at or above market returns over time”
Whilst saving is key to being financially successful, investing is what allows you to amass wealth. Remember to do both within your budget and wealth building plan.
Now that you understand the difference between savings and investing, it’s important for you to understand the benefits of investing and particularly of starting early. You should invest early and regularly!
Benefit #1 – Planting a money tree
If you don’t start early you are missing out on what Albert Einstein once called the “Eighth wonder of the world” – COMPOUND INTEREST. By starting early you’re giving your investment a chance to grow and to be re-invested to generate more returns which can also be re-invested. This is one viscous cycle you want to be part off.
Benefit #2 – Feeling of accomplishment
It’s never fun to look back and have regrets. By starting early and investing often you can have a proud moment that you took care of things and was able to plan for the future. It will give you a sense of accomplishment and that proud feeling can have a positive impact on your other personal and professional life.
Benefit #3 – Leverage your financial potential
You have a lot more flexibility early in your professional life where it is easier to manage your expenses to ensure you have enough savings to invest. As you get older and have the responsibility of a family, your flexibility decreases. However, it’s never too late – you just need to be disciplined and have a plan in place to maximize your efforts. Remember, a plan is not a plan until it is in writing and you can show it to someone else.
Benefit #4 – Life’s comfort when most needed
By starting early, you will be in a position to enjoy life’s comfort when you will need it the most later in life. Also by building a nice nest egg, you will have lots of flexibility. We don’t know what we might desire in the future. We might dream of a nice house or a car but when we grow older our preferences might be very different. Having built a nice investment portfolio will give you the luxury to cater to your future needs.
Benefit #5 – Live your dream!
By being disciplined with your investment goal you can take risks to try new careers, start your own business in an area you are really passionate about or just put your feet up and retire early. By taking care of yourself financially early on you can give yourself an opportunity to really enjoy living in the future.
How do I start investing?
Educate yourself and talk to other like-minded people. Having a support system that can encourage and motivate you will go a long way. Start with a written plan and free yourself from financial hardship. Make your money work hard for you rather than you working hard for your money. Learn how to assess risk, understand different investment options and make the right choices.
A financial adviser can also be helpful in explaining the different types of investments that are available to you, the risks and the potential gains to help you find investments that you are comfortable with. It is important to remember that investing is a long-term prospect and you need to be prepared to ride out the times when the market may not be performing well.
And don’t forget to reward yourself as you reach milestones along the way. A few splurges can help you stay motivated!