You need money to make money, it’s one of those cliches that I actually like and agree with but I am a bigger proponent of cutting out the clichs we hear all the time and getting to the practical application of the principle behind it.
It is just as easy to say you have to have money to lose money. If you think it is easy to make a million dollars by buying a million shares of a stock and waiting till it gains one dollar then it is just as easy to loose a million dollars by buying the same stock and waiting for it to lose a dollar a share.
Einstein’s theory of relativity had nothing to do with money but that doesn’t stop me from stealing his idea and applying it to finances. My economic theory of relativity says that the more money you have the more you can gain or lose, the less money you have the less you can gain or lose. It’s all relative. But ok, what do we do with this information?
Well let’s look at how a person begins the journey. The first place to start making money is by getting a job or starting a business. Once you have an income then you need to save.
Saving also includes investing. If I have a thousand dollars in the bank I have saved that money and if I buy stocks with it, I still saved the money but now I am trying to get more with it.
If my income is high I will probably have more to invest and if my income is low I will have less money to save or invest (sorry, don’t mean to insult your intelligence but hang in there I am getting to the point).
The low income person might not be able to catch up to the high paid person but, if they are willing to work at it, they can certainly do better. Remember, the high income person is also going to have higher expenses for things like his big house (higher mortgage and utilities), his fancy car and his fantastic vacations.
On a percentage basis you can save and invest as much or even more than the high income earner but you have to be willing to give up one thing in exchange for another. In order to save more you have to spend less.
It takes money to make money but notice there is nothing there about amount. You have money and as long as you have realistic goals you can have the same gains as a rich person. The difference is that 10% of $1,000 is $100 and 10% of $1,000,000 is $100,000. But don’t let that be an excuse. Start investing and worry about the amount later.
The sad truth of investing is that the less people have to invest, the more they tend to treat investing like playing the lottery. It seems everyone wants to find the next stock that will turn $1,000 into a $1,000,000 but doing that will most likely lead to a stock that will turn $1,000 into $0. I have been there and done that so I know what I am talking about.
The folks who try to find the magic stock are also the people who are taken in by those stock trading classes that promise to reveal the secret to finding riches in the stock market. But think about it. If these seminars were so right wouldn’t everyone be a millionaire?
Ok so you have money, you want to invest it properly, avoiding the scams and fantasies but where do you go? Well this is one of those cases where I think there are people way more qualified to give you this kind of information than I am. The problem is that it’s easy to find those people selling you a dream and more difficult to find honest people who will tell you to be realistic, reasonable and patient.
I suggest Bill Schulthus and his book “The Coffeehouse Investor.” The subtitle of the book is “How to ignore wall street and get on with your life.” That’s the key, ignore the wall street advisors who make money the more you trade regardless of whether you make money or not.
So yeah, it is true, you need money to make money but the fact is if you spend less, have a little discipline and save, you will have money. Now go make some more.