You will discover how investing works as your primary goal compared to saving money.

Key Concepts

1. Saving vs. Investing

– Saving:
People keep their money in low-risk savings vehicles such as checking accounts and CDs.
– Purpose: Short-term goals (emergency fund, vacation, down payment).
Investors face minimal danger but return little past inflation rate.

– Investing:
You put your funds into long-term assets such as stocks bonds property and real estate to allow them to develop into greater wealth.
– Purpose: Long-term goals (retirement, generational wealth, financial independence).
– Risk/Reward: Higher risk, but potential for significantly higher returns over decades.

Example:
Keeping $10,000 in a bank account at 1% generates $10,100 after one year.
Putting $10,000 in the stock market with its typical 7% yearly return would yield $10,700 at the end of one year.

—

2. Inflation: The Silent Wealth Killer
– What is inflation?
The regular increase of prices (a $1 coffee now will probably be $1.50 in 10 years) happens slowly across time.
– Why it matters:
Your savings will lose value when inflation increases faster than the return you earn on them.
– Example:
Inflation rate: 3% annually.
You will have $74 in purchasing power from $100 cash at the end of 10 years due to inflation.

Key Insight:
When you invest your money can earn more than the normal price increases or rise in prices so your buying power expands.

3. Compound Interest: Your Secret Weapon
– What it is:
You can make money from both depositing and saving your total profits.

Example:
Adding no more funds to the $1,000 investment at 7% annual returns after 30 years generates a balance of $7,612.

Rule of 72:
Determine the number of years needed for your investment to double through the 72 Rule.

To find how many years money doubles multiply 72 by the inverse of the annual return percentage.

It needs only 10.3 years to double when you earn 7% annually.

Tasks for you
1. Read:
Study Investopedia’s Investing 101 basics through sections about investing and the benefits of investment.
Investing allows your money to multiply by systematically growing it over multiple years.

2. Action Item:
Make a list of your three financial objectives including particular details.
– Example 1: “Retire at 60 with $1.5 million”
– Example 2: “Save $50,000 for a home down payment in 7 years.”
– Example 3: “Build a $10,000 emergency fund in 2 years.”

Key Takeaway-:
Everyone can use investment tools to build their wealth through time. The longer you wait to start investing your money the less you will earn through the power of compound interest.

Common Questions-:
– “Do I need a lot of money to start?“
No! You can start investing with $1 as both Robinhood and M1 Finance offer fractional share purchases for their users.
– “Is investing risky?”
The risk of investment comes with every deal but you can control this threat through mixed investments and plans that stretch over many years.