There’s a big difference between saving and investing. Generally – saving is for a very short-term goal like putting money away for a vacation in a few months – or a new tennis racket. Investing is placing your money so that it’s in a position to grow – often dramatically.
There is generally some risk associated with investing – when saving is akin to stuffing your coins into a big jar and hiding it under the bed. Unless someone steals your jar of cash – you’ll generally never lose the money. However, the spending power is reduced as inflation takes hold and prices go up. The same penny you saved last year may buy you much less now.
One secret to long-term wealth building through investing is the power of compounding. I think it’s the 8th wonder of the world! It’s a simple concept. Your money grows exponentially.
If you invest your money – it grows through appreciation in value, income or interest. One hundred dollars may be worth $110 at the end of the year. Next year, if your 110 goes up another 10%, not only does the original dollar grow, but so does the income from last year. At the end of year two – 110 becomes 121 and so on. Growth continues to grow upon prior growth.
The key to exponential growth success is time. The earlier you’re able to put it away – the greater it will grow over time. For example, someone who begins investing in their early 20’2 can potentially accrue more wealth than someone starting later in life. That’s primarily because of additional compounding years.
Rather than stripping away interest and dividend income to use now – if that is allowed to accumulate along with the growth of the underlying investment – money can grow dramatically faster. Put it away now, do it on a regular basis, be patient and watch it grow!
