As you spend less and earn more, you'll begin to earn a profit and save more money. Maybe at first you'll have a few dollars per month in surplus. Eventually, however, you'll find that you're saving 10%, 20%, or even 50% of your everything you earn.
The average person spends his surplus on whatever wants come to mind. Instead of using the money to get ahead, he stays in the same place. Or, worse, he falls behind by taking on debt. A smart money manager puts her profit to use by investing for the future.
At first, you'll pursue short-term goals.
- If you're in debt, get out of debt. Destroying high-interest debt offers the best possible return for your money.
- Build a cash reserve. It's smart to have money in a savings account to cover short-term emergencies.
- Invest in yourself. Remember: the more you learn, the more you earn. Increase your skills and education. Update your wardrobe and improve your health. Become a better you.
- Pursue your personal mission: fund college funds for the kids, pay off the mortgage, start a business, spend a year in southeast Asia. Use money as a tool to improve your life.
After your near-term wants and needs are satisfied, it's time to look farther into the future, toward retirement and Financial Independence. You know what that means, right? It's time to invest in the stock market!
Investing doesn’t have to be difficult. If you keep things simple, you can invest yourself and receive reasonable returns — all with a minimum of work and worry.
First, lets look at what not to do.
The Worst Investor I've Ever Known
Allow me to introduce you to the worst investor I've ever known. His name is J.D. Roth:
That's right, I'm using myself as an example of what not to do when investing.
You see, for a long time I didn't understand how the stock market worked. I treated it as if it were a casino. I picked a stock, put all my money into it, and crossed my fingers. I took risky gambles hoping to strike it rich.
Unsurprisingly, I lost a ton of money. [Read more…]