Many American consumers worry about how much money they should be “saving” every month, debating the merits of saving 10% as opposed to 25% or whatever number that they feel is “correct”.
The fact is however that it’s not the amount of money that you save that will build wealth, per se, but what you actually do with that saved money.
For example, if you save 10% of your income every year, at the end of 30 or 40 years you will certainly have a sizable amount of money in savings. On the other hand, if you invest that money wisely over the same amount of time, you could very well end up with 40, 50 or even 60% more money due to compounding interest. Indeed, you might end up earning more in interest every month than you actually contribute from your paycheck.
In short, investing your money is the best way to accumulate wealth.
Let’s be honest, investing is something that isn’t taught in high school and, for many consumers, is a bit “scary”. Some people come from families where saving money was never even done, let alone investing. Then there are others that had the luxury of being taught about financial responsibility by their parents although, unfortunately, those people are in the minority.
Even more daunting is the fact that there are so many different investing options to choose from that knowing which one to use can be extremely difficult. Most financial experts will tell you that investing in a number of good mutual or index funds is a safe bet, and then keeping your money invested in those funds for the long term as the market ebbs and flows.
Frankly, finding a good financial planner to help you do this is a vital task because, as a trained money manager, they can help you to determine what your risks are and what investment options are the best for your particular situation.
When you’re younger, for example, choosing investment options with a higher risk, but higher rate of return, is probably more appealing. On the other hand, if you’re closer to retirement your best bet would probably be a more conservative approach with less risk. In either case, a good financial planner will be able to advise you on which path to take.
One caveat to investing is that, before you begin, it makes sense that you are debt-free. The reason is simple; if you are paying more in interest fees than the interest that you could make on your investments, you’re still going to come out with a loss.
If you have questions about investing please drop us a line and we’ll be glad to give you information and advice that will help you.