Thursday, January 21, 2010
Find Your Savings Style
Tip #225 - Find Your Savings Style. Just as “All Roads Lead To Rome,” there are many ways to acquire wealth. There are those who are ambitious and enterprising who seek and find ways to start a business or increase their income by getting an additional job and build their wealth that way. There are others who become investors and buy and sell stock, hoping to build up their riches that way. There are still others who cut down on their expenses, live frugally and hope to build up their savings in that manner. There is no “right” way to do it. You need to look at your credentials, personality, opportunities, and comfort level with risk before you decide how you will pursue YOUR road to riches.
We can all dream of winning the lottery. That is surely a quick way to get rich. But the likelihood of that happening is very, very small. So one has to be realistic on how to go about building up his/her savings. You can get a second job or start a business and increase your income by not spending the additional money you earn. You can learn about investing and buy and sell stocks or other investments. You can invest in real estate and become a flipper or a landlord. You can stop eating out and move to a house half the size and put away the difference. In other words, you can try to increase your wealth very quickly by taking huge risks or you can grow it slowly by minimizing your risks.
How do you think you would be most successful in growing your wealth? Are you the type that loves a challenge and wants to start a business? Do you think you have the guts to invest large amounts in a stock and the stomach the swings of the market? Can you put up with the headaches of being a landlord? Or are you willing to do away with luxuries so you don’t have to undertake much risk while still building your savings? Be realistic with yourself. The person with the most money does not win. The ride along the way is very important. If you cannot sleep at night if your money loses value, then investing in high-risk stocks is not for you. If you let things roll right off you, then being a landlord may be just your style. If you are not a go-getter, then starting a business would not be a good move. If you have patience, then giving up small things in order to save money might be your best bet.
Find your savings style and capitalize on it. Use that as a base for your plan to build wealth. Just because you see someone else making it big in the stock market, doesn’t mean it would work for you. By the same token, don’t look down on others who live frugally to save their dimes while you are living the big life. Your road to riches should make sense for you. Find your way.
In Real Life (IRL) – I had a conversation with my mother this morning that made me introspective on savings styles. I told my mother that I was selling a sewing machine on Craigslist that I hoped to get a couple hundred dollars for. My mother reminded me that the sewing machine came from a condominium that my brother bought for investment. “Really? I asked. I truly didn’t remember that. I thought it was part of a condominium we bought with my mother-in-law for her to live in. But my mom said, “No. Don’t you remember that your brother gave it to your mother-in-law because she sews?” The more I thought about it, the more it came back to me. Yes, we did take that sewing machine out of my brother’s investment property and give it to my mother-in-law. As it worked out, my mother-in-law never used the machine, and it sat unused for a few years until our visit a few weeks ago when I decided I would take it home with me to practice my sewing. It wasn’t until we took it out of the cabinet that we realized it was a complicated machine best utilized by experienced sewers (unlike me) and worth a few hundred dollars on eBay. That’s when I decided that I would sell it. Which brings me back to savings styles.
While my brother is buying condominiums for investment and income streams, I am selling bits and pieces from inside the condominiums on eBay and Craigslist. He owns dozens of investment properties and gets calls all hours of the day from tenants and isn’t phased by it. He borrows money, pays back money and is constantly looking for the next investment. He doesn’t worry about “small” costs like eating out and designer clothes. His style is not my style. I am not a big risk taker. I’d rather build my money up slowly than have heartache over a busted pipe or a stock that lost half its value overnight.
When my brother helped me create a financial plan, he was amazed at how little we live on. Our monthly clothing budget from discount and thrift stores might equal what he spends on coffee for the month. Our approaches to building wealth are very different. Yet neither is wrong. He might get there faster than I do. He might have more swings. He will enjoy his dinners out and not be phased by leaking pipes. While I am content to build my wealth with ten dollars here and twenty dollars there earned on eBay that I hope will turn into a college fund for my children. And I sleep peacefully at night knowing that I don’t have to worry about anyone’s leaking pipes.
Either way or many other ways of building up savings, and therefore wealth is valid. Again, there is not one "right" way to become rich. There may, however, be only one right way for you to build up your savings. You just need to be truthful with yourself on what you can handle and then start doing it. For other ways to build up your savings, check out Frugal Fridays.