Wealth is gotten on purpose. It can happen by accident, as when you just happen to buy the next hot stock before it explodes but those situations are not common. For the most part people accumulate wealth through following certain laws and adhering to certain mindsets.
Today I want to talk to you about putting the laws of savings and investing to work for you. Let us begin by exploring what the difference is between the two;
Savings – this is money you put up for the rainy day. It’s where you keep your emergency fund or savings to pay for the new tires you want to purchase. Savings accounts typically follow these guidelines;
1) Money is easily accessible – you can get to it with relative ease
2) Money is penalty free – you don’t get penalized for using the money when you need it
3) Is not the place you look for great growth – these accounts tend to get low or no interest and are not the place you put money you hope to grow.
4) We can place savings into checking, savings or money market accounts for easy access.
Investing – this is money you put aside for your future. It’s where you place money that you are not going to need anytime soon. You watch this money to see it’s growth and to monitor its progress.
1) Money invested is not easily accessible. – Since this money is not meant to be spent it is placed in accounts that make it hard to just go and get your hands on.
2) Rate of return is very important – Here the interest rate earned and growth potential of your investment is paramount. When you are investing the rate of return is one of the key factors to determine whether or not it’s a good investment.
3) Diversity helps out – there is an old saying “don’t put all of your eggs in one basket.” You want to spread your investment out over a few different vehicles to help offset investment risk. If all of your money was tied into one stock that fell (such as Enron) you could see your life savings dissolved in front of your eyes.
4) Investing with knowledge of the investment is paramount – Know whatever vehicle you are using as well as you can. This will prevent being surprised by changes in the market you don’t understand.
5) Sources here include CD’s, Annuities, Stocks, Bonds and Real Estate which are not liquid investments.
To accumulate real wealth, you must save and invest.