Skip Saving and Start Investing

So the idea is to work hard at a job you love, save some money and start investing so that one day the income from your investments is enough to support your life style. I call this a work optional state, others call it retirement and some call it " freedom 55" as if this is something you should wait until age 55 to achieve.

In a country as rich as Canada with all the safety nets in place, and a relatively high standard of living, you would think that saving 10% to 15% of every dollar would be a fairly easy thing to do. Actually it is easy to do, but interestingly enough, most people don't do it. In fact, many people rather than choosing to live a life style that allows them to save 15%, choose to live a life style that costs more than what they earn. Of course the only way to do that is to borrow money, usually from a credit card company and, once your neck is in that credit card noose, it is a painful extraction process. Many people have to start by simply cutting up all their credit cards.The bottom line is this, if you have a credit card and do not pay off the full amount of the credit card bill every month before the due date, then, you are living beyond your means and need to adjust your life style.

Saving money to invest does not necessarily mean, opening a savings account and depositing 10% of every pay cheque into that account. In reality saving and investing are usually concurrent. The people I know who are good at saving are actually really good at investing.

When you invest, you are directing your money in a way that the principal amount is protected and there is a good chance that it will grow. Paying down the mortgage on your house or, placing money into an RRSP are examples of investing because there is a good chance you'll see all of that money, and more, again some day. Buying a Tim Horton's coffee or any manufactured consumer product from cars to cloths or jewelry would not be considered investing because there is only a minuscule chance of recovering your money and no chance of growth.

Financially successful people tend to be frugal. That does not mean they are cheap scrooges. What it means is that they spend money very deliberately. Whenever they spend money, even for a Tim Horton's coffee, they are conscience that the expenditure is, or is not, an investment. Financially successful people are continuously finding ways to increase their investments because their bias is to increase investments and reduce expenditures.

Putting it another way, financially successful people focus on their net worth and on doing things to increase their net worth. For them, cash flow and affordability are important because of how they might increase funds available for investment. They are much more interested in seeing their net worth go up than they are in buying a new car or taking an ocean cruise.

Net Worth ? I'll talk about that next time.