Many people face one vital dilemma: should I invest or should I save? As it turns out, this question usually has a straightforward answer. The ability to save money is integral to successful investment and financial prosperity. You can think of it as the foundation of your financial house. Private and professional life throws unpredictable situations and challenges at us.
With ample funds, you can alleviate the pressure of living from one paycheck to the other. Moreover, this is the only viable strategy to pave the way towards true independence and wealth. So, evaluate where you are now and where you want to be in the future. Use a reality check and start making a difference today.
Two sides of the same coin
You know what they say— a penny saved is a penny earned.
It may not seem like much at first, but a surplus of cash turns into a real fund over time. Of course, increasing your net worth is linked to various benefits. First of all, it is always a good idea to have some spare liquidity at hand. It is surprising how many people underestimate the importance of cash in any portfolio. Namely, this resource does not always have to bring returns for you. Sometimes, it is merely enough that is there.
Budgets often die by a thousand little cuts, not one huge financial blow. This means that small expenses add up over time and you see your financial health slowly withering away. On the other hand, with cash piled up, you are able to jump on the golden opportunity when it presents itself or navigate a tough period as right as rain.
So, to come out on top, you have to be able to keep track of your spending. What is more, you should bear in mind that saving and investing money are two mutually dependent concepts, although they should not be confused with each other. After all, they play different roles in balance sheets and financial strategies.
Pillars of stability
Saving money usually precedes the act of investing it, so it makes sense to discuss it first.
One of the first things to figure out is how much money to save. Well, most financial experts agree that you should set aside a fixed amount of money each month. As a general rule of thumb, 10% of the total income is a sweet spot. By assigning a portion of your income to the reserves, you can completely transform your balance sheet in the years to come. You should note that saving more money is not necessarily better than saving less money.
It all depends on your income, lifestyle needs and long-term goals. You can work with a trusted financial advisor to make the right call. Also, one neat trick is to automate the transfer of money so that it does not require any willpower. This can be easily done with bank account deductions on a monthly basis. You can pile up cash that way or decide to put funds into a separate savings account.
In any event, you want to have enough money to cover all expenses, including loan payments, mortgage, operating costs, utility bills, insurance, food, clothing, and transportation for at least the next six months. Note that big hurdles like debt should be tackled as soon as possible, as they impede your capacity to save money.
Money breeds money
At one point, you should have a nice lump sum. The question that arises is what to do with it.
Well, just saving money is not the recipe for getting rich. However, once you reach the threshold of $100,000, you have several tempting options. This is a big enough sum to secure loans or make capital purchases. One of the most lucrative endeavors you can launch is investment in stocks, (savings) bonds, real estate, or some other alternative market, like the cryptocurrency one.
The decision is related to your investment ambitions and tolerance to risk. Some people prefer building ownership of assets that garner passive income. Others are keen on hunting big scores in dynamic sectors that potentially bring great rewards, but tend to be rather volatile. Interestingly enough, gold is still a sound option. It is widely used as a hedge, a safe haven, and direct investment. The price of genuine gold bullion is steadily increasing and is also quite stable.
Of course, if you have an entrepreneurial spirit, you can also go on to set up your own business. There are numerous alternatives in this department, so follow your passion and make good use of your experience and skill set.
Whatever you do, some margin of safety is always a welcome addition to the investment mix. To obtain it, you need to predict how much the value of an asset will increase, if at all. Ballpark figures do not cut it: get into a serious numbers game. The ultimate objective is to acquire a predictable, safe, and acceptable rate of return, preferably over an extended period of time.
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Come up roses
Saving money lays the groundwork for generating wealth and gaining financial independence. The only time you should not save is when you have a great investment opportunity or a higher immediate priority in life. Start by assessing your financial situation and getting your priorities straight. Tidy up your financial house and have an emergency fund in place. Plan ahead of time and determine how much money you can save without compromising your lifestyle and basic needs. By putting it aside bit by bit, you should be able to have enough capital to fund your investment campaigns.