There are only two ways to make money.
Working and having your money work for you.
Putting your money to work is investing. You expect more in return than initially put in.
A compelling reason to invest is the prospect of not working. If you save enough and invest, your investment returns will cover you living expenses. Then instead of working 60 hours a week for other peoples dreams, you can follow your own.
Saving and investing for family, friends and smart philanthropy is also a goal for many folks.
If you already save money, that’s a great first step… But stuffing all your cash under your bed is a misguided action. Money sitting around over time losses value. And it loses value due to inflation.
Inflation is a general increase in prices as the purchasing value of money falls.
Inflation is hard to see over a week, month and even some years. But it eats away at savings over time. To see the effects, ask your parents how much a loaf of bread cost when they were kids. Ask how much a gallon of gas cost… or the cost of going to a movie.
A loaf of bread in 1950 cost under 20 cents. Both a gallon of gas and a movie were around 25 cents.
Even with technology advances bring down costs, prices have skyrocketed. One dollar from 1950 is about the equivalent of $10 today.
With these examples its easy to see only holding cash is not ideal.
Inflation is considered a hidden tax… Don’t pay it.
Investors minimum goal should be beating inflation which has averaged about 3% a year. Beating inflation can usually be done by investing in “risk free” U.S. treasuries and bonds. They’re considered risk free because the U.S. government guarantees them. The government can raise taxes to pay back the borrowed money… or print more (which leads to faster inflation).
Understanding inflation and why you should invest puts you ahead of 80% of your peers.
Taking the time and acting upon this knowledge puts you one step closer to financial freedom.