How do you transition from, living pay check to pay check, to saving, to then being able to invest? There is a difference between saving and investing.
There’s a spectrum with spenders on one end, savers in the middle, and investors on the other end. Living paycheck to paycheck is no fun – it can be stressful. Money is scarce. The first order of business is to recognize how to get out of the scarcity mindset. The first rung is to get to the saving step and start saving. Just a little at first – and then keep stepping it up. You see – if you keep thinking if you can get a bigger paycheck then all is solved.
More Money Isn’t the Answer. Problem is people tend to keep expanding spending to the checkbook – or more (debt). Recognize you need to make due with what there is now – not what you wish there was.
Here’s a great article by Carolyn T Geer: Spender, Saver, Investor: It’s a Process that walks through the basics. She talks about budgeting – a process that tends to forget the purpose of the exercise. The top down budgeting approach is supported by the budgeting philosophy described in the book All Your Worth: The Ultimate Lifetime Money Plan. It is much easier to manage your money when you have a broader perspective on how to relate to money.
The purpose of what you want to get done in simple terms – move from spending everything to saving a little bit, and then a little bit more – only in this manner may you begin to get your Standard of Individual Living to where you might be able to sustain it with the money you’ve invested.
Once you are used to saving, then the next step is to invest. Only through investing may you hope to accumulate enough to sustain your Standard of Individual Living when you can’t, or don’t, work anymore (all known as retirement – hopefully planned, however often unplanned – EBRI consistently sees this in their retirement surveys).
Moral of the story: Get in the habit of saving. If you’re saving, get into the habit of investing. Make both automatic. Make a commitment to yourself. Remind yourself of what, and more importantly why, you want to do this. Your goal is to sustain YOUR standard of individual living – not someone else’s.
Photo source first use: By Unknown (artist), Johnson, Riddle and Co Ltd, Penge, London SE20 (printer), Her Majesty’s Stationery Office (publisher/sponsor) [Public domain], via Wikimedia Commons