Many new investors don’t seem to grasp that saving money and investing money are two entirely different things. They both have different purposes and play different roles in your financial strategy. Making sure you are clear on the concepts before you begin your journey in the real estate investing world is imperative and can save you from wasting time and buildup of stress. With firsthand experience and input from individuals who lost everything and had come across more hardships than success. A big downfall was not appreciating the true role of cash in their portfolios. Cash deserves respect, your goal shouldn’t always be generating a return for yourself. A good place to start would be to determine the differences between saving and investing for you and your company. Define and understand both concepts.
True definition of Saving Money?
Saving money is the process of putting fresh, hard cash aside and parking it in extremely safe securities of accounts. This can include checking accounts and savings accounts. This can also include treasury bills such as bonds, notes. Cash reserves must be available when you reach for them; available to grab use and deploy immediately with minimal to no delay no matter what is going on around you. Many famous and successful investors, as well as older investors who lived through the great depression actually advocate keeping a lot of cash in hidden places only you know about even if it involves a major loss. It wasn’t openly reported at the time but during the 08-09 meltdown, some bond fund managers were reported sending their spouses to get as much cash as they could out of ATMS because they believed the entire economy was going to collapse and there wouldn’t be any access to greenbacks for a while.
True Definition of Investing Money?
Investing money is the process of using your funds, or capital to buy an asset that you think has a high probability of generating a safe and acceptable rate of return over time. Making you wealthier even if it means suffering and or being frugal for a few years. True investments are backed by some sort of margin of safety, often in the form of assets or owner earnings. As many of you have learned the best investments tend to be so-called productive assets such as stocks, bonds and real estate.
How Much to Save Vs. How Much to Invest
Saving money should almost always come before investing money. Think of it as the foundation upon which your financial house is built.
The reason is simple. Unless you inherit a large amount of wealth, it is your savings that will provide you with the capital to feed your investments. If times get tough and you require cash, you’ll likely be selling out your investments at the worst possible time. That is not a method for getting rich quick, investing takes time.
Only after these things are in place and you have a good foundation for your personal & health needs should you begin investing. The only additional exception would be putting money into a 401(K) plan. Not only will you get a substantial tax break for putting money into your retirement account, but the matching funds basically represent free cash that is being handed to you in a silver spoon. There are material bankruptcy protection in place for assets held within such an account should you be wiped out entirely.
More Information About Saving Money
For more information about how you can begin saving money, read 14 simple money moves you should make before the end of the day It is filled with great tips about simple saving strategies for every day life. It may seem daunting now, but every successful self-made person had to begin by earning money, spending less than they earned, taking those savings, and putting them to work in projects that threw off dividends, They are no better than you are. If you learn the same thing, and can act as rationally so as to manage your money with discipline.