When I was younger, I remember constantly being told that I need to save my money. This led to me constantly putting money into a small piggy bank, and later a savings account with the hope that my money will continue to grow. I remember when I took a look into that savings account for the first time, when my dad finally gave me my bank card, and I also remember the feeling of disappointment, as I was expecting more. The reality is that many people will live frugally and put a small amount of money into savings, but when the time comes to collect we find ourselves struck with the disappointment of how little money there actually is.
The issue with saving is not the behavior of saving, but rather the expectations we have around saving. Many professionals are still of the impression that they can save for their entire working life, and by the time they retire they have enough money to live off of. Unfortunately this is no longer the case, and the need to invest is becoming more important now, more than ever before.
There are a number of investment vehicles which do deliver decent (or more than decent) returns, but these investment vehicles are often expensive. Therefore, it is important to build up some capital by saving some money.
In this post I will discuss How to Save Money to Invest as well as discuss the importance of saving and investments.
The importance of investing
I believe that saving money is very important, as you never know when you might lose your job, your car might break down or when life just happens and you need some extra cash. So I would always encourage people to save to ensure peace of mind. That being said, I do feel that investing is far more important and far more valuable.
Earlier, I mentioned that I was disappointed when I found out how much money I had in my savings account. The reason for this is that I thought that I had earned some interest from the bank for keeping my money in savings. In my naivety, I did not realize that the interest I earned in my savings account was only 1%. Still, it was the thought of my money growing, i.e. my money working for me, that really excited me.
This is what makes investments so great, an investment works for you and grows with time. Investments work off compound interest, which means that as your investment amount grows the greater the return that you receive from it. This is often more effective than saving money, as you can receive the initial investment money plus a profit when you decide to withdraw your money, and generally the interest rates are much higher for investments than they are for savings accounts.
Reasons to save now and invest later
There are a number of reasons you should start saving immediately. Many people put off saving because they think that saving is for losers, or they are looking for short term pleasure. The reality is that whether you are looking at a specific investment or have no saving goals in place it is always good to keep some money aside, and here are the reasons why:
1. Save for an emergency
The reality is that life happens when you least expect it. What I mean by this, is that you never know when your car will break down, or when your pet gets sick or when things just don’t go your way. These scenarios happen very frequently and so it is important to have money available for when these things happen rather than to rely on a credit card or a loan.
2. You never know when there is an opportunity
I’ve been in a number of situations when a great opportunity was presented to me, and as much as I wanted to go for the opportunity I couldn’t, because at that point in time I couldn’t afford it. It is such a horrible position to be in. These opportunities can be investment opportunities or learning opportunities, whatever the occasion you will want to be prepared for them.
3. Begin to mould investing behaviors
When you start to develop a behavior around saving, such as paying yourself first, and avoiding spending money on liabilities, you start to develop good habits for investing. So, a habit you will start to develop would be: to spend less and save more; and this will mature to: spend less and invest more.
4. Peace of mind
Having money to fall back on just allows you to sleep better at night. If you know that an emergency pops up then you can address it quickly with no hassles, there is a level of peace that comes with that.
How to save money to invest
In a previous post, I spoke about F.I.R.E – Financial Independence Retire Early – which is a movement of aggressive saving with the intention of attaining financial freedom. This movement focuses on living frugally to save aggressively so that you can live off the interest earned off an investment without touching your capital invested. This is a movement that allows us to see the value of saving and investing, but also gives us the opportunity to question our current lifestyle.
While engaging in conversations and reading up on the F.I.R.E movement, I was able to interrogate certain purchases I’ve made and question my mentality around spend. An example of this is my car, why do I need a car when I have public transport and hailing services, like Uber and Bolt, readily available to me? Can I live without a car? These questions led me to experiment with a lifestyle without a car, and what I found is that I could not only save a lot of money in a month, but I was also able to spend more quality time with my wife when we walked to a nearby convenience store.
Another thing which we discovered was that we could have groceries delivered to us, and it would actually save us more money than had we gone to the mall to do our shopping.
So the tips that I would give you to help you save more would be:
1. Pay yourself first
Put your money away the moment you get it. This will force you to work within the budget you set.
2. Only eat out on special occasions
Some people feel the need to eat out after payday and this can kill your financial gains. Get out of this habit early, set time and money aside for special occasions.
3. Start cooking for yourself
It’s a well-known fact that if you cook for yourself you can eat healthier, attain better control over your own nutrition and save money. Don’t take my word for it – put it to the test and calculate how much you would spend on takeaways vs if you cooked for yourself.
4. Consider getting your groceries delivered instead of shopping in a mall
Something I recently discovered is that malls are designed to drain your wallet and encourage unnecessary spending. You have the intention to buy only the items on your list, but as you walk through the mall or the store, you suddenly see things that you “need” which was never on the list to begin with. Or perhaps you see a sale and get tempted to buy more than what you need. It may be cheaper to have your groceries delivered to you rather than shopping in a mall to avoid the temptation of impulse buying. But don’t take my word for it – put it to the test.
5. Be open to experimentation
By now, you must think I am a fervent saver and that I feel we should all save, but in reality I feel that learning to save is the first step to learning how to invest. You need to experiment early so that you can mature and develop your behaviors to become that of a wise investor. The habits you learn from saving can be carried over to investing. So experiment with your lifestyle and get creative with new ways of getting around or doing shopping, and thriving in general.
Improving your cash flow
The aim of investing should be to improve your overall cash flow. Simply stated your cash flow is defined as the total amount of money being transferred into and out of a business, i.e. income minus expenses. If you improve your cash flow that means that you are able to maintain or enhance your wealth, and some would even say that you are only truly rich if you have a very strong cash flow.
Then how would you go about improving your cash flow? It’s simple, you can either decrease your expenses or increase your income. In the section above, I did speak about decreasing your expenses as I do believe that this is easier for most people to do. Another way of improving your cash flow is by increasing your income.
How then do we increase our income? Most people rely on their jobs as their only source of income and this is dangerous, because if you lose your job, then you’re screwed. So the first thing I would strongly recommend is to get an additional source of income, and you can get this through investments, like property, business, and stocks and bonds.
However, these investments can be costly and I would strongly advise that should you choose to make use of these investment vehicles, that you seek out a mentor or invest in your education regarding those investments.
There are other investment opportunities which may be cheaper. These opportunities can be found online, one such opportunity is in affiliate marketing. Affiliate marketing is a marketing arrangement by which an online retailer pays commission to an external website for traffic or sales generated from its referrals.
If you are interested in affiliate marketing I would recommend that you check out Wealthy Affiliate. They do provide high quality training and education and are quite cost effective in terms of the resources that they provide, online support and overall great community.
Moulding behaviors for investing
In this post I have spoken about how saving is important, but investing is more valuable. I do believe that it is always good to have money set aside for those unexpected moments when you may need it. I also believe that it makes sense to set money aside with a goal in mind, such as an investment like property, stock or business.
Save now rather than later, as you would rather have a larger sum of money available to you rather than when you have a goal to save towards. Starting to save is the first steps to building investing habits, and I do hope that it will be the start of a fruitful and prosperous life.
Also, remember that the ultimate goal of investing is to improve your cash flow. So try to reduce unnecessary expenses and improve your income through investments or online opportunities.
I hope you enjoyed reading this post as much as I enjoyed writing it. Please let me know what you think in the comments below.