Hey there, money nerds. I’ve become increasingly frustrated with the lack of interest in personal finance among younger Americans says Peter DiCaprio. While income has increased, saving rates have declined since the early 70’s across all age brackets. I believe this is why both the rich and poor are getting richer-it easier for people who are already motivated to save more money to make more money. All the while, saving is easier than ever with interest rates low on savings accounts and high on debt products.
How Saving Can Make You More Money than Investing (Even In This Market) I believe everyone should learn some basic personal finance skills regardless of their income, because it teaches you how to handle your money in a way that’s more likely to get you ahead. Don’t believe me? This guy went from broke and in debt, to rich and out of debt by saving instead of buying fancy cars and shit:
I’m going to break down the difference between investing and saving for you, why they’re different, and how you can benefit from both. I’ll also touch on some related topics like inflation.
Why they’re Different
First off, let’s start with what investing is. If we were talking about stocks or bonds or some other investment product, it would be when you buy a security (like a stock) through an intermediary (like a broker) with the intention of making money when its price goes up in the future. This is why it’s called investing. When you’re 10 years old, if someone asks what you want to be when you grow up, you say “rich”. If they ask why, the answer is “so I can invest” (or something like that).
Why It Doesn’t Matter As Much to You Right Now
Basically, at this point in your life investing doesn’t matter as much because you have a lot going against you:
1) Debt –
Credit cards and student loans mean interest keeps you from growing faster than inflation.
2) Lower income –
Making less money means your investments have to work harder for a smaller return.
3) Little assets –
By assets I mean anything valuable that isn’t a car or house-stocks, bonds, mutual funds, etc.
4) You might not care –
If you’re enjoying your youth and less worried about retirement, of course you don’t feel like investing. That’s why I was broke for so long-I never looked forward enough to plan ahead (and instead complained). Whether you’re working or on vacation; whether you pay off your credit cards in full every month or carry a balance; whether you save or spend on clothes and cars…whatever it is, if it makes you happy do more of it! But make sure whatever makes YOU happy right now doesn’t cause you any unhappiness later on explains Peter DiCaprio.
If we were talking about individual stocks, the reasons would be different:
1) Risk –
The price of individual stocks can go down, not just up. And if you need access to your money soon (like in 5 years or something), there’s always the chance of bankruptcy which could wipe out all your savings.
2) Access –
It’s really hard to buy thousands of stocks (and keep track of them) when you’re young and starting out, because it takes time and effort that you don’t have then. You can buy one stock through your broker or online, but it’ll take a while before it appreciates enough to buy another one!
3) Cost –
Just by existing, the costs of trading stocks mean they won’t grow as much comes inflation so you have less chance at getting ahead later on… …All this is why investing isn’t as important when you’re young compared to when you’re older says Peter DiCaprio. Unless you have a lot of cash that’s just sitting around, don’t worry about investing in something like the stock market for now.
Why It Matters A LOT to You Now
You have to save money, that’s just a fact of life if you want to get ahead. There are infinite good reasons to do so, but I’ll list the main ones.