Saving is putting aside money as a reserve, perhaps for a new gadget, or for your next travel. Investing on the other hand is committing to achieve a long term goal in order to earn financial return.
Not spending the money or putting it in the bank is also considered as saving. Some might say that it’s okay to just put their money in the bank since it’s safe, low risk and somehow there are returns (right… like 1%). Actually, based on studies, after conducting a 16-item basic financial literacy quiz, majority scored below 50%. Most of them thought that the definition of financial security or financial independence is having enough money in the bank. WRONG! Nothing against banks, but your money will not grow in the bank. With their low interest rates, savings plan may not earn you wealth enhancing returns over the long term. Take into consideration also inflation. I always tell my clients to just put 3 – 6 months’ worth of your expenses in the bank. This will serve as your emergency fund. Beyond 3-6 months, you have to INVEST it!
Now what is investing? Why should you invest? Investing is growing your money. This will create and preserve your wealth. When you invest your money, you get passive income. That means, you make your money work for you! Most of us were taught that you can earn money by getting a job, meaning you work for money. That’s not how rich people think. Some of the richest man in the world didn’t even graduate high school. I am not saying that you skip school, just know how to manage your money well and know where and how to invest your money. Passive income requires less work which will give you more time for your hobbies, travel, or simply spending time with your family.
Remember, as mentioned earlier, it’s committing to achieve long term goal. So don’t think about it as a “get rich quick scheme” that when you invest your money into something, it will grow automatically and right away. Warren Buffet once said, “Someone’s sitting in the shade today, because someone planted a tree a long time ago.” When someone asks me, when is the best time to invest? I always say 20 years ago, second best time is NOW. That is why I always say to them that you should learn how to invest as early as possible.
Yes, there will always be risks involved, there are no guarantees. The higher the risk, the higher the returns, and of course, lower risk, lower returns. But with proper guidance and knowledge about the investment vehicle that you are about to get into, you can definitely lower down the risks. You should not invest on something that you do not understand. Do some research about it, read books and attend seminars. The real investor does not simply throw in his/her money at any random investment, they do careful analysis of investment and take “calculated” risk.
What are the different types of investment?
- Mutual Funds
- ETFs / Exchange Traded Funds
- Pooled Funds
- Start your own business
- Real Estate
- Cash Investments
- Alternative investments (FOREX, Gold, Real Estate, Etc.)
We will be discussing these different types of investment on one of my blogs.