There’s plenty of advice out there about how to make money in the financial markets. Many people think investing is the key to wealth-building, and investment strategies abound. There are also people who, strategy or no strategy, dream about picking that magic stock that will put them on Easy Street. Sure, investing’s important—but if you really want to know how to make money, you’ve got to go back to square one: saving.
Something as mundane as saving doesn’t get much press. However, you’ll make more money by saving it than by intently focusing on earning from the gyrations of the market. Even a better-paying job won’t help if you don’t know how to make money the boring way. If your saving habits remain the same and you’re spending the rest, the net effect of a pay increase is zero.
Go for the Greatest Money-Making Impact
The leading and most important factor for wealth building is saving.
Obviously, even a phenomenal investment strategy is useless without money. Although saving ranks number one for how to make money, few have learned to be savers! Not even Warren Buffett could invest what the average American household has saved and turn it into an adequate retirement nest egg. You must contribute to your nest egg by saving, because the market will not do it for you. To earn a dollar in interest, you need to save twenty of those dollars first – that’s assuming a 5% rate of return!
Learn how to Make Money Using the Gardening Concept
Your earning ability is like the garden plot where you can plant. The more you earn and the more years you’re working, the bigger your plot is. That gives you more potential for wealth. Saving is planting the seeds. However, even a huge garden plot (large income) won’t yield a decent crop if you don’t plant (save) much. Investing is the crop diversity and fertilizer. Being smart about fertilizing can add to the yield of your crop, but it doesn’t replace having a plot or sowing seeds.
Those with great big plots who don’t plant many seeds won’t have much to show for it. People who have tiny gardens but plant and fertilize diligently can eat well and have quite a bounty!
Put Saving Strategies Before Investing Strategies
Lots of people get tied up in knots trying to figure out how to make money through investing. Don’t fall prey to this confusion! The gardening concept described above is the best perspective you can have. For most of your earning years, how much and how consistently you save has more impact on your long-term wealth than the return you get on your investments.
Improving your rate of return only has a significant impact after you’ve accumulated a large investment portfolio. Getting 1% more in interest on a $1 million portfolio is significant. Struggling to eke out a 1% interest increase on $10k portfolio won’t make much difference. What’s really powerful is saving and adding to the plants in your garden so there’s more for that higher interest rate—the fertilizer—to work on. While you’re saving, don’t forget to examine your finances as a whole to be sure you’re ready for the investing step.
It’s interesting how elusive something can be if you don’t have a good definition for it. For instance, lots of people want financial freedom, but what exactly is it? Some see it as a vague goal or distant dream. Others think financial freedom is only for an elite few. Financial freedom is a great concept, but can you define it and determine where you stand with respect to being financially free?