Question: Why should you invest your money?
Answer: You need to be investing your money now because you only have a limited amount of time. You cannot work forever. When you stop working, you stop making money. If you start investing money, your money makes you money.
The best way to make money is to invest money.
You see, most people are investing their time in order to make money. They have a job, and they are trading their precious hours for dollars.
Some people go to college or learn new skills so they can trade their hours for more dollars, but they’re still investing their time to make their money. When they stop working, they stop making money.
Other people, though, invest money. Instead of spending their hours to make more money, they spend their money to make more money. Their money is working for them, instead of them working for money.
Investing allows you to create passive income
As mentioned before, your job will only pay you if you’re willing to work. When you stop working, you stop making money.
Investing, on the other hand, is less picky about the amount of hours you work. You could make a one-time investment in high-end dividend stocks, never touch it again, and still expect to get paid every month (that is, of course, assuming you made a solid and strong investment choice).
That’s the idea of passive income. You spend your time and effort learning about a great investment opportunity, spend your money to make the investment, and sit back and enjoy the rewards continue to roll in.
Common forms of passive income investments include dividend stocks, peer-to-peer lending, real estate (rental properties), and many more. There are also many other ways to generate passive income, but that’s for another blog post.
Investing allows you to create wealth
There’s no question that the wealthiest people are investing their money. But investing is not some top-secret formula that’s only unlocked to those who already have money. Anyone, including you, can start investing today! You can even start investing even if you have little to no money to begin with.
Most people get their paychecks, pay their bills, then save what’s left. Wealthy people get their paychecks, invest their money, then pay their bills with the what’s left.
The difference in the latter is that people who are wealthy understand the importance of making their investments a priority.
Note: I am in no way telling you to stop paying your electric bill so you can invest all your money in bitcoin.
But what I am telling you is that when you figure out your monthly budget, be sure to include funding your investments as a priority. You should always be fueling your investment vehicle.
Investing allows you to experience the effects of compounding interest
Compound interest is simple: it’s the interest on your interest. Wait, what?
Imagine you have $1,000 to invest at an annual rate of 10%. After 1 year, you made $100. After the next year you would expect to make another $100, right? WRONG!
Because you’re no longer gaining interest on $1,000, you’re now gaining interest on $1,100. So in year 2 you would make $110. Now you have $1,210. The next year you make $121.
Here’s a quick little table to demonstrate this example for 10 years to see how powerful compounding interest really is
By re-investing your earnings, you’d be able to turn that $1,000 into over $3,000 within 12 years by doing nothing.
Now, that’s hardly going to make you wealthy, but imagine what that same $1,000 would look like if it was just sitting in your savings account? (hint: it wouldn’t be nearly as close. In fact, money just sitting in your savings account is actually stagnating).
Let’s re-create this example, but this time, you’re able to find a way to save an extra $50 dollars every month (which equals $600 a year) and add that to your investment fund.
Now, by continuing to fuel your investment vehicle (adding $50 a month) combined with the effects of compound interest, you have turned your initial $1,000 investment into nearly $16,000 in 12 years.
And it doesn’t have to stop here. As you continue to get more financially literate, it’s inevitable that you’ll more and more ways of saving money and continuing to feed your money making machine.
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I hope you now see the power of investing and how it can transform your finances and life. If you don’t know where to start, I suggest using RobinHood. RobinHood is a stock exchange platform where you can trade stocks and pay zero commissions. If you use my link here to sign up with RobinHood, we both get a free stock!
If you want to really learn the basics of investing in the stock market, then I’d highly recommend you read The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)