You Still Need To Save, Even If It Financially Destroys You
Now is not the best time to invest if you’re not ready.
Over the past decade of working, I’ve probably cycled through a sizeable sum of money. Six-figures eventually passed through my hands in the form of broken down weekly payments that fluctuated positively and negatively, depending on my life circumstances.
There’s a story floating around that’s written by an ex-banker who talks about how he used to laugh at people who save — that you should be smarter with your money and invest instead.
Personally, I have nothing against savers, nor investors.
But there are a few issues I take with his story. Why?
Because many people don’t exactly get to experience the luxuries that come with figuring out how to make between $10 to $20k in a month like him.
It’s still about how much you make
Back when I was a kid, I remember reading the bible story about the three slaves being left with bags of gold. One got five bags, another got two bags, and the third slave was only given one. There were no instructions other than to keep it safe.
The first two slaves invested the money and ended up making more. However, the slave with only one bag of gold buried it. The third slave got branded as evil and lazy.
I’m sure there’s a moral to the story, but I just remember thinking — that would be my mom. She’d bury the gold.
The only thing is that she’s not evil and lazy. In fact, she’s far from lazy. Rather, she was just an uneducated factory worker that’s trying to get by with what she makes. She leaves the house at 5 am and gets home by 7 pm. She didn’t go to school, speaks broken English, and can’t really read.
What often irks me about articles and advice about investing is that it assumes that you’re in a financial position to do so. With the current state of the economy in flux, when you only have a little and don’t understand exactly what you’re doing, it’s akin to gambling.
I’ve always felt bad for the guy with the one bag of gold. Unlike the others, he doesn’t have the fallback of more bags if something went wrong. Another thing that’s glossed over in the tale is that the master gave the slaves the amounts of bags based on their abilities.
The other two had an unfair advantage over the third slave, made worst by the third slave receiving less.
The other two probably know how to make more money while the third slave doesn’t. He is already disadvantaged and is further penalized for it.
It’s also about how much debt you’ve got
Over the years, I’ve run into the maths of money — inflation, investment rates, depreciation, future projections, credit scores, and all that stuff.
However, I failed the one major lesson that my parents experienced with their income in their twenties and thirties — I failed to understand how detrimental debt is to wealth building.
The thing with debt is that it eats at your paycheck like no other creature. While day to day variable costs that are controllable like food and utilities (to a certain level) can be reduced and increased, debt is something that grows like a raspberry bush that’s left to do its thing.
Sure, you get nice berries in summer, but the thorny vines are hard to deal with once they get to a certain and unmanaged size. It snakes around. It gets everywhere and when you try to get rid of it, it just bites you back with vines that rip into your jeans.
Trust me, I’ve been there — in the literal and figurative sense.
When you borrow money, you are pitting it against your future income. The supposed investment is supposed to be something that returns more in value over time.
Mine was supposed to be my University degree — except I didn’t think it through. I signed onto my first and biggest debt before I was legally allowed to drink or figured out how to drive. I did it because I was expected to do so. Everyone was doing it.
And that’s what a lot of the investing articles floating around tend to do — they pressure you into thinking that you should do something because it is the sensible thing to do.
They often brand you like the third slave rather than take a step back and give you the tools to help you analyze your current situation, money habits, earning potential and abilities, and what you can do with it.
There was a time where I was making more than what my parents make per year combined — but my bank account was worst than theirs. Why? Because student debt ate a big portion of my income.
Here’s how the theory of money works:
- the money you have now is worth more than what it did yesterday
- when you borrow, you are borrowing against your future income, which is supposed to end up costing less
- inflation will erode your money over time
However, what many people don’t account for is the interest rates against borrowing money are often more than the rate of inflation, and whatever value your money is at.
If you’ve done it on your credit card for something that loses its value over time, it becomes an expensive sunk cost.
Another thing is that inflation is that it’s never truly a straight line. There is a myriad of factors that determines what the inflation rate ends up being. These factors include monetary policies, governmental decisions, industries outputs, lending rates, and what the rest of the world is doing.
Then there’s the cost of living to account for — something that no one really talks about when it comes to investing.
Here’s a diagram of what reality actually looks like with money:
When you’ve got very little leeway to begin with, investing and saving isn’t really feasible as an option. If you don’t own your own home, rent is essentially a fixed cost you can’t escape.
If you’ve got children, their ongoing costs (daycare, clothing, doctor visits, school supplies, food etc) get squeezed into an already tight budget. Your ‘free’ time also gets cut down as you juggle between your current work and the second full-time job that is your children.
Before even thinking about growing your money, you need to understand what’s your total bandwidth when it comes to money and where things are going.
Getting rid of debt will increase your overall purchasing power and give you more room to move forward in a mentally safer manner.
It doesn’t matter what the math ends up being with long term growth and inflation, if you haven’t got the cash flow to pay your rent because your money is stuck in the stock markets and debt, you’re going to end up sleeping on someone else’s couch.
Invest like Warren Buffett they say…
People often refer to Warren Buffett when it comes to investing — often giving the billionaire the troupe of the smart guy that made it big through investing.
However, that’s as far as it goes.
How many of these ‘financial gurus’ know or understand Buffett’s method of investing? Or what kind of portfolio he manages?
They just tell you to do what Warren Buffett is doing — but on a superficial and surface level.
What they don’t talk about is how Buffett invests in things he understands. He looks at his stocks as businesses rather than just numbers that fluctuate based on media coverage and trends. He looks at the long-term viability, the management, the business structures in place, the historical growth, market placement, and the long term global movement towards product types.
With this mentality and method, it’s also most likely the reason he doesn’t put his money in bitcoin. To him, bitcoin isn’t a product, nor is it a business. It’s a currency that’s speculated, and that’s not his thing.
He doesn’t just invest because stocks are going up. He invests because he is confident that the business has a strong margin of safety and the potential for long-term growth. He’s not a boom and bust kind of investor.
If you look at it this way, Buffett is actually a more conservative investor than what most people realize.
Clean yourself up before you take the leap into the economic cycle
There’s many people that are telling you to leap into the economic cycle now. But this isn’t the best advice.
They say it’s winter and that you should throw your money into investments while everything has hit rock bottom. They draw parallels to planting and sowing seeds — except they seem to forget that you don’t plant and sow in winter. You plant and sow in every other season other than winter.
Winter is the season where you enjoy your rewards. You’re not out there in the cold and snow where nothing will grow. You’re more likely to get sick or freeze from the negative temperatures.
If we draw parallels with seasonal planting and the economic cycle, we need to do so in a workable and sensible manner. You need to look and think about the economic cycle.
There are plants that sprout indoors at a particular time, while we sow others into the grown directly. Some need more water than others. Some need a specific soil type to thrive. The best time to plant is in spring, but to last the winter, you also need to sow and plant in fall. The geographical climate also contributes to the plants’ growth cycles.
Many of us missed that boat and fell straight into winter.
A lot of us weren’t prepared. Now we’re all wet and cold.
However, all is not lost.
If you’ve got nothing planted, now is the time to figure out how to acquire your seeds and learn about how they grow.
The world runs on cash flow. When there’s a blimp, it can break your entire setup like a domino effect. Getting rid of debt will give you the financial bandwidth needed to get started and be ready. Set yourself up with a cash sinking fund for when things hit the fan. When things go bad, it becomes an inconvenience rather than the end of the world.
Only then should you start thinking about putting your money in places other than your savings account.
What’s the point of having money? For me, it boils down to freedom.
We’re all slaves and we all have our masters. The taxman is one of them. He’s a compulsory part of life. Your landlord and utility provider is another. You have more choice with your grocery store and where you source your daily dose of caffeine.
Debt is one we voluntarily enslave ourselves to — either out of peer pressure or through our fleeting whims.
The purpose of having money is to be free — or at least reduce their impact and control over our daily lives. When we have money, we have more choices.
If you do not create more money, then the only other option is to change the current ratios by decreasing the amount of debt you have.
We need to get real with ourselves and our current situations. The math of money might say one thing, but the reality is often very different, especially if you’re on the lower end of the earning scale.
You need not be a millionaire to be financially free. Having millions against your name but also millions in debt is approximately the same as having almost nothing.
It’s empty money that belongs to someone else. It’s not yours.
This is not the perfect time to invest. It’s the perfect time to get yourself together, do your research, and understand exactly what you’re planting and in what kind of soil and expected rainfall.
Don’t just throw all your seeds into the ground just because someone used emotive language on you. The thing is, not all your seeds will grow, especially in frosty conditions. You need backup grains, at a minimum, to last you through and just enough left over to do staggered planting to enjoy a long and bountiful harvest throughout the year and for the next winter.
So pay off your debt, save, and research. Investing isn’t for the rich. It’s for people with the financial bandwidth to do so. Invest only when you’re financially and mentally ready for it. When the world emerges again from hibernation, you’ll be able to sow your money on investments that are hardy and will flourish.