So before we talk about investing, let’s take it back to the basics. Let’s talk about money.
Let’s say you just received your paycheque and you earned $1,000. This income is called disposable income. You can use this income in 3 primary ways:
1. Spend 💸
First, we spend the money we earn. This option is inevitable. We have to spend money to survive. We need a place to live, food for our bellies, clothes to keep warm, entertainment, shopping and giving. A sizable portion of our income goes to spending and there’s nothing wrong with that.
Second, we save. This involves taking a portion of our income and setting it aside for future use. Future use could be a month from now, a year from now or even 30 years from now for retirement. This is money you put aside for future needs. Savings is good. It serves as a foundation for building wealth. It instills the discipline and culture of saving for the rainy day. For those times when the unexpected happens.
3. Invest 📈
Third, we invest. Savings is good but investing is much more freaking awesome and better. Savings is like you driving a beat up junk car while investing is like you driving the latest Tesla X. Let me explain what I mean
Saving vs. Investing Explained
So let’s assume you decide to save the $1,000. You put it in your bank account, or you put it under your bed or your stocks drawer. Well, if you come back 10 years from now, that money will still be sitting right there in your account, or underneath your mattress or drawer as the case may be. The money will be there staring at you. There is absolutely no opportunity for growth. It’s just stagnant.
Money hates being stagnant, else it decays as it loses its purchasing power due to inflation.
You realize that the $1,000 in 10 years is no longer as valuable as it was 10 yrs ago. The same cup of coffee that used to cost $2 is now $4.50. So you cannot buy as many things.