Everybody wants to be a great investor. I mean, who doesn’t, right? Living the high life, enjoying good food, travelling around the world. It’s so easy to sell the dream that investing is the way to go if you want to achieve those things. We all know the importance of investing, but question is, how do you begin investing if you don’t have any money to begin with? Investing is a lot about money making money. If you don’t have any to begin with, don’t even think about investing. Before you become a great investor, think about how you can be an even greater saver!
Saving is boring. But yet, the richest people are people who are the greatest savers! (Read: I spent 5 years studying rich people, and here’s what they tend to have in common) If saving is hard, forget about investing. If it’s too difficult to think of ways to increase your saving rate, investing is infinitely harder.
I may not have the highest savings rate, but I was saving 70% of my allowance during my NS days. Yet despite so, I was continually finding new ways to push this number further. I was doing online surveys over the weekends which I then proceeded to use the money to buy books that funded my learning! Over the course of 2 years, this gave me a lot of cash to work with by the time I was done with army. Not only was I filling up my warchest, my knowledge also grew exponentially while I was reading my books.
‘The Millionaire Next Door’ by Thomas J. Stanley and William D. Danko was one of the many books I read and it left me a lasting impression. In this book, the authors introduced the different types of savers Prodigious Accumulator of Wealth (PAW), Average(AAW), Under (UAW). It is based on a really simple formula:
How far are you away from your target networth? Are you a PAW? (We should all aim to be PAWs)
I know, I know.. Some of you may not be working yet so this is not applicable? Turn income into allowance and it’ll work the same. But for those too lazy to calculate, here’s another helping hand:
Rather than take the easy way out and look at it based on the number of years worked, I would suggest basing the target networth on your age, or back to the formula, whichever higher. It’s like a 10 seconds exercise, just take it and at least get an understanding of the benchmark. I think far too many of us save blindly without a benchmark, and more often than not, undersave. With a strong savings rate, it creates a strong and growing buffer to assist you in your investments. You don’t want to sell your stocks because you don’t have savings, only to see it rise 50% after you’ve sold it. Want to be a great investor? Become a greater saver first instead!