WHEN I was young, the significant grownups around me often spoke of the importance of saving money. Some gave me piggy banks in different shapes and sizes to entice me to set aside a portion of all cash that came my way as birthday and Christmas presents, and — during Chinese New Year — inside enticing red angpow packets. Yet, for the longest time I derived more satisfaction from spending money than saving it.
What about you? I know some people are innate savers. For instance, JL Collins, the author of a fascinating book entitled The Simple Path to Wealth writes: "From the beginning, I was a natural saver. Watching my money grow was intoxicating. I've never been sure how this started. It might be hardwired into my genes."
Collins' book is worth owning and reading, both for his engaging style and its rock-solid content, even though I don't agree with everything in it. In the realm of wealth accumulation, I now teach my clients and seminar audiences the four possible activities each of us may indulge in when aiming to build wealth. Two are stupid; two are smart.
The four activities, listed from highest to lowest risk, are gambling, speculating, investing, and saving. I consider gambling downright asinine; speculating often dumb; investing wise; and saving crucial.
Full disclosure: I provide holistic financial planning help to my clients in the three distinct — yet interlocking — dimensions of wealth protection, wealth accumulation, and wealth distribution.
Specifically, within the wealth accumulation dimension, I only help my clients with saving and investing. I don't touch upon the numerous speculating and gambling opportunities ominously swirling all about us because the odds of triggering catastrophic capital destruction through them are too high.
IMPORTANCE OF SAVING
So, while I help my clients construct their diversified savings and investment portfolios, do understand the purposes of those life disciplines are different. Furthermore, in my opinion, saving should be a higher priority activity than even wise investing.
We invest to try and grow a portion of our money faster than inflation and taxes erode its purchasing power. But that necessitates staying invested for the long haul, typically over time horizons stretching from seven to perhaps 50 years, through good decades and more importantly, bad years.
Consider this profitable investment maxim: Time in the market is more important than timing the market. As for savings, just remember we can't invest money if we don't have any; and the only ways to get money are to steal it, borrow it, or earn it.
Well, stealing is for crooks. Borrowing is sometimes perilously easy. Earning is noble and necessary. So, don't steal — it's wrong. Be super-cautious about borrowing money because debt sets an insidious trap for the ignorant, naive, and unwary.
But earning money ethically through service to others is honest and character-building. So, my recommendation is for you to earn your money but not to spend it all.
In another segment of The Simple Path to Wealth, Collins writes with compelling clarity: "Money can buy many things, none of which is more important than your financial independence. Here's the simple formula: "Spend less than you earn — invest the surplus — avoid debt."
Simple? Yes. Hard? Yes.
As I said earlier, we can't invest if we don't have money, and the best way to get money is for us to first work for it.
OF SAVING AND INVESTING
I was late in waking up to the fundamental importance of saving money. It isn't hardwired into my genes. In the mid-1980s to the mid-1990s, as I zipped through my 20s, I laboriously battled credit card debt not once, but twice — in two countries. (I'm a slow learner. Thankfully, I possess a long memory that helps me internalise key lessons.)
The specific struggles associated with my trying to pay off rolling credit card charges first in England, and later in Malaysia, yielded this revelation: It's better to have money saved than not. Much better.
We each ultimately save money for only two reasons: To stabilise our finances during economic storms, and to stabilise our emotions during personal turmoil.
Possessing a towering, stable stack of our own cash, not mere borrowings — in the bank or in pure money market funds — during volatile market downdrafts helps us deploy some of that money as "dry powder" into great investments at depressed prices as we wait for the eventual bounce that always materialises in sound investment markets.
So, whether you find saving money easy or hard, natural or forced, just do it. The late wealthy businessman-philanthropist W Clement Stone (1902-2002) believed in, understood, and applied sound personal finance principles. He said: "If you cannot save, then the seeds of greatness are not within you."
If ever there was a self-crafted key to success, I believe it is embedded in Stone's (and Collins') parallel advice. Now here's my take on it:
Save some of your money each time any cash flows into your life. Invest a chunk of it. Finally, allow your blended savings and investment portfolio to compound and grow uninterrupted for decades to make you rich.
Do we have a deal?
© 2023 Rajen Devadason
Rajen Devadason, CFP, is a securities commissioned-licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com. You may also follow him on Twitter @Rajen Devadason and on YouTube (Rajen Devadason).