Saving is important for keeping your money. But if growing your money is the goal then investing is the way to go. Not sure what is investing? Successful investing goes something like this: you put money into something and get back more then you put in.
That's the simplified version. Let me give you a real world example from my own experience on how investing works and, more importantly, why you should do it.
One of my investment accounts had about a 4.5 percent return this past year. On the other hand, my savings account with my local bank has never had a return greater than .30% in a year. Now let's say I had $5,000 set aside to invest.
Had I put that $5,000 into my investment account, I would've made an extra $225 this past year. But, had I kept that $5,000 just sitting in my savings account I would've made--at the absolute most--only 15 bucks. See why investing is so important?
It's money you could put to work for you. Or, if you choose not to invest, that's money your missing out on. Big time. That's because investing allows you to make money on money you already have.
With investing, you're putting your money to work for you. There are a million different ways to invest your money, from stamps and artwork to real estate, buying shares of stock in a company--making you a part owner in the company--or, even as an entrepreneur.
The following 3 steps can act as your introduction to investing (financial education website Growella has a short video that explains this).
1. Always tax yourself
Money saved can be money invested. But, if you don't have any money set aside, you won't have any money to invest, so start by "taxing" yourself every pay period. Set aside a percentage of your net income every time you get paid to put towards investing. The sooner you start this process the more rewarding your investments will be in the long term.
Acorns is a great application to get you into the 'self taxing' habit.
2. Don't get excited
Whether you're on the bottom end and it seems like you'll never recover or on the top end when your whole portfolio is on a hot streak, you have to always stay level-headed and maintain emotional discipline. If you get too excited on either end of the spectrum, you can make decisions that'll put your entire investment in jeopardy. So stay cool!
Ask yourself periodically "Are you investing or are you gambling?"
3. Protect your downside
Investing can be fun, but it can also be risky (see my second point). The most popular way investors protect their downside--meaning, how they mitigate risk--is to invest into different asset classes. Examples of different asset classes include everything from bonds and US stocks to natural resources, real estate, foreign stocks and more.
Here's another example of this. Let's say you're an entrepreneur who makes popular products. You're a creator, but you're bad with math and money management. You'd protect your downside by hiring someone who can offset your weakness with their skill. In this case, you'd want to have a competent bookkeeper or CPA on standby.
Regardless of how or where you choose to invest, it's much more important that you choose to get started. Setup your accounts and stop putting it off. Remember, every minute you waste keeping all of your money sitting in a savings account (or under your mattress) is another minute you're missing out on valuable returns.
Keep these pointers in mind and pace yourself because investing is a marathon.