Myths that Keep You Broke #26

Myth #26 - Invest Instead of Save:    

Many people believe they need to start investing right away, and that putting money in a savings account, or a money market account, is a waste of time.

However, if you start investing before you start saving, what if you need money for something as simple as your car breaking down? Where will the repair money come from?

Here is the point: The car never breaks down at the right time, or the water heater never breaks down at the right time. And you have several ways to take care of unexpected expenses:

  • You can use a credit card. Bad – if you make payments instead of paying the balance in full each month.
  • You can just write a check from your checking account. Easy – if the balance is large enough.
  • You can take the money from a “Spending Account” as I suggest in my Wealth On Any Income book. Good idea and easy.
  • If you started an investment account, you can sell off some investments and pay for the expense that way. More complicated. If the market is up, fine, you just give up some of your gains. If the market is down, that would be bad timing. And you cannot plan for the market to be up at the same time as your car or water heater breaks down.

The point is: Life provides surprises. And to be ready you need to plan ahead. That is the purpose behind a “Spending Account”, which is nothing more than a savings account that you can get to whenever life sends you a surprise.

This “Spending Account” will also prevent you from adding to any credit card balances if you carry any from month to month. To create this account, just set aside 5% of your income until you have a balance that would be equal to a few months of your income. Then you can stop and add that 5% to your investment account.

To Your Prosperity,