Saving is Defense: Investing is Offense

Do you know the difference between saving and investing? What is the difference between having $100,000 in a high-yield savings account (HYSA) and $100,000 in an income investing portfolio?

Once they get out of credit card debt, most people become savers. Saving comes naturally because you have complete control of your money—there are no risks.

Saving over the long run. If you only save, prepare to be disappointed over your lifetime. The main reason is that inflation will eat away at your nest egg yearly.

Happy Cash Flow Retirement 6

There is a simple reason why savings will always underperform inflation—the Federal Funds Rate (FFR).

The Federal Reserve sets the Federal Funds Rate based on economic and inflation data. Most of the time, the FFR is below the prevailing inflation data.

For example, when inflation was at 2%, the FFR was 0%. The FFR is at 5% today, but inflation is between 6-8%.

The interest rate on your HYSA derives from the FFR. Therefore, by every metric, your savings account will always trail inflation.

Looking beyond inflation. Inflation is only one data point you need to consider. We also live in a capitalist society, meaning anything can explode in price.

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We can look at healthcare and college tuition as expenses that have outpaced inflation and, therefore, your savings account.

The housing market has also seen a massive run-up after the pandemic. There is too much going on to move in the slow lane of savings.

Savings is defense. Your savings account is to protect you from emergencies and save for high-ticket items.

Once you achieve your savings goal (6-12 months’ expenses), you will need to look toward investing. Investing is the offensive part of your financial game plan.

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There are many ways to save and make good returns, such as HYSAs, certificates of deposit, Treasury Bonds, and Series “I” Bonds.

However, even these great tools won’t allow you to keep up with health care, the housing market, and college tuition prices. 

Becoming an investor. It is tough to transition to becoming an investor, so most people never convert.

First, you must decide how you want your future to look. Do you want to travel with your wife and kids? Do you want to fund your kid’s college or pay for their house down payment?

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Investing successfully is nearly impossible if you don’t have a dream or goal. Investing will bring some dark days, so you must see the light at the end of the tunnel.

Ways to invest. When considering investing, most people only think about the stock market; however, investing is all around us.

Investing is more a mindset than a balance sheet. Here are some ways to invest that can help you outpace the economy.

1. Invest in yourself. Upskill so that you can increase your pay or start a side hustle.
2. Invest for dividends. You can start a Dividend Growth or Income Investing portfolio.
3. Invest in a business. You can rent your car or buy an ATM.
4. Invest in real estate. You can buy a rental property or rent a room.
5. Invest your time. You can exchange your time for driving Uber or working for UpWork.
6. Invest in content. You can create content that will generate income 24 hours a day.

There is no wrong way to invest if you understand the ropes. All investing takes time to unfold.

Decrease Possessions. Increase Wealth.

Most people want a quick answer or fast money. Expect to see “massive” results over five years. However, you will see gains from day one to year five.

Starting out as an investor. The first year as an investor, real estate tycoon, entrepreneur, or content creator will be challenging. 

You will not know the ins and outs and feel like everyone is outperforming you. You may even get imposter syndrome, where you feel like you are faking this new life.

I felt this way during my first year as an author. I didn’t think anyone should read my books because I wasn’t good enough. However, as I reread my first articles, they are pretty decent.

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All this is to say to believe in yourself. Everything you learn will pay dividends over the next 20-40 years.

Using saving and investing. Every successful football team has a good offense and defense. You must save and invest in protecting yourself from emergencies and future price increases.

Only you can decide how much you need in your emergency fund. Only you can decide how aggressively you want to invest in dividends.

It is a balancing act, but one that you must play. A combination of savings, real estate, dividends, content, and business will get you to your goal.

The Metaverse 109: Content Creation in the Metaverse

Let’s say your dream life will cost $10,000 per month in passive income. You will want to aim for $20,000 because of how much things change.

You can achieve $20,000 per month with a pension ($5,000), dividends ($5,000), rental income ($5,000), and a website ($5,000).

Just beware that getting these things into position may take ten years. That’s the power of saving and investing—you can have it your way.

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Conclusion. If you can’t get past saving, you may need to address some lingering money issues from childhood.

With a scarcity mindset, saving could be the best we can achieve. To become an investor, we need an abundance mindset.

I’ve had some tough times with my real estate and the stock market. My book business hasn’t exploded as I had hoped.

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However, I am on the right path because my net worth and passive income increase yearly. My family is enjoying the fruits of our passive income strategy.

If you have the right long-term mindset, it’s tough to go wrong as an investor. Invest in things that add value, and you will harness the magic of compounding. 

Saving is a great way to protect you when tragedy strikes, but it won’t pay for college or a down payment. You need to aim for bigger returns to meet those goals. Good Luck!

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