Money Making Money
When you borrow money, there is a price to pay. The lender charges fees and interest. They invested money in you and their return comes as you pay back your loan plus interest. Their interest income is how their money is making money.
Some have referred to this process as “money having babies”! Think about that as you drive by a farm in the spring and see a herd of cattle with a lot of calves. The farmer is getting a return on his investment in a bull!
It is better to be a lender than a borrower!
How Do You Become the Lender?
The first step is to get serious about saving.
If you have not been able to save, you need to ask yourself why. Is it an income problem? Is it a spending problem? Or is it a “I don’t care” problem?
You need the desire to save before you make any sacrifices or discipline yourself to work extra or change jobs.
You need a plan to give your desire some fuel to burn and give you the drive to succeed.
Be Positive
It does take some positive thinking to set some goals and have the faith to work through roadblocks on your path to achievement.
Work on your attitude as you go. But, set some goals that will make you reach and stretch to achieve them. And, by goals, I mean saving goals, income goals, learning goals, etc. You set your own limits by what you think you can do.
Experience will teach you that you are more capable and smarter than you give yourself credit.
Saving for Needs and to Invest
There are two basic reasons to build a savings habit. First, you can avoid borrowing (including credit card usage) for emergencies and unplanned expenses. Second, to invest the amount which is over any immediate emergency provision.
There is considerable debate about what is “enough” to have available to cover “emergencies”. There is a consensus that six months of living expenses will cover most short-term emergencies, including a job loss.
Granted, it will take a while with persistent effort to build a savings account equal to six months of living expenses. However, imagine the peace of mind you will have when you do.
Above that amount, you can start to consider ways to invest, allowing your money to earn money.
Start Simple and Safe
With the recent Federal Reserve interest rate increases, banks began offering higher rates for Certificates of Deposit (CDs). With rates over 4%, CDs have become a reasonable place to hold money as a safe investment. Your money can earn money safely.
There are other investment options. However, start safely until you can study more and consult with others related to higher risk and more volatile investments, like stocks and bonds.
Work on Your Risk Tolerance
You will hear the phrase “Risk Tolerance” many times when talking about stocks and bonds or mutual fund options for your retirement account.
Without considerable study of public trading markets, you may find that the cycles of the market appear to be too risky. However, you must keep in mind that the stock markets are made up of thousands of publicly traded company shares. And just because the total market shows a decline does NOT mean all companies have lost value on any given day. The same goes for upward movement.
The best way to learn the market is to have a vested interest, own some stock! Then, you will begin to pay attention to industry news and follow any news related to that stock, paying attention to what moves the price of that stock.
You will build up your risk tolerance with success. But always remember to spread your risk with companies in different industries.
Success based on understanding of how the market works will help build risk tolerance. You can learn to get by without those invested funds and tend to buy and hold well-managed, profitable company stocks. Those have a history of building value over time.
Long-Term Assets
I know everyone dreams of winning the lottery. However, the vast majority of lottery ticket buyers will win very little, while spending thousands of dollars over any ten plus years of regular purchases.
There is a much greater chance of making a profit by investing in the stock market. However, it does require some monitoring and much of the movement in stock prices is emotionally driven with worry over the business cycles. In other words, you must adjust to the decisions of a lot of people. But you can continue to read and monitor the market to increase your understanding of what stocks to buy that will bring you the desired results.
At this point, I want to remind you that your working career will possibly span fifty years. The first ten will need some discipline to make savings a habit. The second ten should make up for the short fall of the first ten years. After that, your investment knowledge should allow you to double your savings every seven to ten years.
That said, any reasonable study on your part will make that believable. How well you do will depend on you and your advisors.
Now, back to the subject of Long-Term Assets. By assets, by most definitions, I mean they can produce income. Stocks can return dividends. Bonds can return interest, as do CDs and Money Market accounts.
However, with even bigger potential on returns, you might consider such options as real estate rentals, a stand-alone business such as a laundromat, or a retail outlet. Of course, there are many online options, as well.
The one limiting factor is your willingness to work extra and be a good saver and a good manager of time and money.
Profit from Knowledge
There are so many opportunities available to anyone willing to read about them, act on them, and look long-term with goals to reach for the possibilities.
Start small but build some momentum over time. Reinvest your earnings from investments and you will be able to grow your savings faster with compounding—money making money!
Become the expert through study and experience and others will come to you for advice. If you know enough, people will pay for that knowledge.
Wealth Comes with Accumulation
Over time, when you learn to avoid the risk of debt and build on the force of compounding, you can increase your rate of accumulation. Just remember to do it honestly and with a spirit of sharing and good stewardship.
Being financially independent, according to many advisors, is when working a job becomes optional. You can reach that point when long-term assets bring you the income you need to cover your living expenses. Then, a job will give you more money to invest!
You can do this. Even a small start can build into an accumulating discipline that can give you confidence and courage to work toward a better future for yourself and your family!