No regrets

Bill Baker, 80, a former prisoner at Alcatraz Federal Penitentiary in San Francisco Bay, said,"If I could go back and have my same brain as it is right now in the body of a young kid, I would do it entirely different. But... if I still had the brain of that kid, you couldn't tell me nothing."

Can I tell you something?  

Saving money for your future is a good idea.  Unfortunately, saving means delayed gratification.  Waiting to spend is indeed a burden.  But it's a burden that you won't regret.

Pay your bills

"I don't believe in saving, " a friend once told me.  "I only care about what I can buy today.  I don't want to think about tomorrow.  Plus, I don't do discipline.  I'm not going to save over and over again to achieve some goal way in the future."  While not a saver, he did pay all his monthly bills.

Why not issue a personal savings bill to yourself, each month?  Don't think about saving.  Just pay the bill, on time.

The last year of life

If you save for the last year of your life, then the second to last year, then the third to last year, and so on, and so on, eventually you will be saving for next year; you will have financially met yourself in the middle of life.  Well done.

To Save or Not to Save

Who knows how long I'll live.  I could be hit by a bus!
Consider the real probability.  The likelihood of living longer is much higher than a life threatening event coming to pass.  And living requires economic resources.  Saving helps.

Money is the root of all evil.
Instead of money, think about the term "economic resources."  Acquiring resources is the result of your sweat equity.  That equity can be traded for future goods and services.  Saving is the way.

I'll marry someone rich.
How did your spouse get rich?  Not by spending all their resources but by saving and building wealth.

I have just had a job loss.  I need money for my emergency fund and to pay off high interest credit card debt.
Spending money for these reasons is the right thing to do.  However, after these challenges have been met, return to a regular savings schedule.

I don't make enough money to save.
Saving is a mindset.  Small amounts are meaningful and no amount is too small to save.

Plan

"So do not worry about tomorrow, for tomorrow will bring worries of its own.  Today's trouble is enough for today."  (Matthew 6:34 RSV)

Don't worry about your financial future, but do plan for it.  

Having a financial savings plan today will reduce tomorrow's money challenges.

Going against the group

Investing is difficult because of our emotional need to "go with the group."  When others are telling us a stock is spectacular we get euphoric and greedy and wish to buy.  If we are told the same stock is a real dog we get pessimistic and fearful and wish to sell.

However, often it is the contrarian investor, the investor who goes against the tide, who succeeds.  This is because he is buying when prices are low (the group is negative on stocks) and selling when prices are high (the group is positive on stocks).

The pioneering global investor, Sir John Templeton, said, "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.  The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."

One of the best investors in the world, Warren Buffet, said, "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

An investor who keeps his emotions in check is more likely to be successful than an investor who does not.  Will you go against the group?

Fifteen Bear Market Years

The stock market, from 1929 to 2009 (Source:  S&P Equity Research), as represented by the S&P 500, had fifteen years where the median decline in value was thirty-four percent.

That's fifteen bear market years when a portfolio of stocks really went down.  Scary.

But staying out of the market from 1929 to 2009 would have been a very bad idea.  Because even with fifteen horrible years the long term trend for the S&P 500 was positive.  An investment in a fund tracking the index, including reinvested dividends, would have grown substantially.

No one can predict the future.  Past returns do not necessarily reflect the probability of any future returns.

But history shows taking money out of the market, and thus missing the positive trend, was a poor long term strategy.  It would have been much better to stay in.

Debt is spending

Debt can achieve things.  You can go into debt to spend on a house, a car, to fund a child's education or just to spend on someone special.  But debt is only appropriate if your income is more than your payments on that debt AND you can meet all other current expenses AND have money left over to save.  Debt is spending.  Always spend less than you take in.

Capitalism trumps Socialism

Socialism is the state ownership and control of the means and the results of production.  Capitalism is the private ownership and control of the means and results of production.  No state has ever been able to socially/centrally plan an economy and have continued success.  Long term success comes from the private sector.  The private ownership of resources and free access to markets is the steam for the engine.  Opportunity for all to enter the market and give it their best is the best idea.  All those brains, all that brawn, all those individual economic decisions result in products and services that make our world a better place.  The state should control some economic resources but the private sector should control more.

Active and Passive economic roles in life

My main economic role in life is getting a job and receiving a wage.  Or, if I start my own company and work independently I expect to receive compensation for that effort in the form of profit.  This is my ACTIVE role.

At the same time, in parallel, is my PASSIVE economic role.  That is saving and investing through time.  Each day that I actively work my savings are working, too.  While I am waking or sleeping my money is working for me.  I don't see or touch it.  But I know it is capital that is being used by others and I will get a return on that capital.

The best investment I can make is in my education to further my skills and obtain more active income.  However, I will not forget that my passive income needs to be working alongside me at all times.  To do that I need to save and invest.  I play both active and passive economic roles in life.

I am not getting older!

You are getting older.  How do you think you will feel at 75 years of age, 50, and 25?  "I am not getting older!"  That is a fantasy.  Each day you are heading to a higher number, and you will get there.

It is appropriate to get older.  It is not appropriate to deny it.

Why?  Because in order to make provision for your later years you need to admit that you will be older.  In order to save today you have to believe there is a tomorrow.  And there is!  Count on it.

The great asset that you have to increase your wealth is time.  Save as the time goes by.  "Oh, I'll do that later."  No, do it now.

Save through time

Financial advisors stress "time in" the market rather than "timing" the market.  It is more important to have assets in the market for a long period of time than it is to pick specific entry and exit points.  The more time in, the more compounding can expand wealth.

This implies that savers of all ages should save through time.  This is self-evident but hard to put into practice.  How many young people have heard an older person say,"I wish I was young again," or "You're lucky you have your whole life ahead of you."  The days/weeks/months/years of your life are passing by and will continue to do so.

Saving is appropriate for each time period.