What’s the best way to invest? It’s a question I’ve gotten a lot over the past year. And it’s a question that I’ve really struggled answering. A major reason I’ve struggled answering it is because most people who ask this question expect a quick and simple answer. They expect the existence of a trick that if they can implement, there’ll be instant success. But if there was, I’d be rich, wouldn’t I? And there’d be a lot more wealthy people, wouldn’t there? Another reason is that most people think that this is a good question to ask. But this question lacks something important. It doesn’t really provide context. And context matters a lot when it comes to money. Using an analogy my sister gave me, before a doctor prescribes anything to you, they ask a bunch of questions to get a clear understanding of your situation. Its the same with investments. I’d need to understand a bunch of thing about you and your situation before I give you any advice. Another reason is that people will ask questions because it feels like progress. ‘If I know how to get wealthy, then it’s just a matter of actioning it when the time comes.’ ‘I’m not wealthy now because I don’t have the resources. But at least I know how to get wealthy.’ But asking and actioning are two very different things. And doing is a lot harder than asking.
Spend Less Than You Make
Save. This is the one simple advice I’d give to anyone looking to create sustainable wealth. It is simple. It is boring. It is unsexy. And because of this, most of you are going to completely ignore this advice. If there ever was to be a one size fits all suggestion, it is this one. Save. You don’t even need to bother about where to put that money. About where to invest it. Just get in the habit of putting something aside for a rainy day. It doesn’t matter how much. Just have something on the side that you do not touch. Do that consistently over a year. Yeah. Just a year. It seems easy. But in my experience, its the easy stuff that turns out to be hard. And when it comes to building wealth, outside of the few outlier cases (trust me, they are few. Don’t let the constant coverage of wealthy people fool you into thinking it is the norm), discipline in saving is probably the single biggest factor in many of the success stories out there.
The Psychology of Money
If you can do this one thing consistently, then I know you can look at your investment portfolio take a temporary hit, and not panic. I know you can put money into an investment, and let it do its thing. I know you can be patient. Why am I spouting things to do with psychology and not finance? It’s because the more you know about finance, the more you understand that it has everything to do with human psychology. And if you are able to manage your own psychology, you’ll be able to manage your money. And the chances of you creating wealth increases exponentially. My parent put money aside, and when the time came, they bought their own land, and built a mabati house. They chose to leave stone walls, and go live in a mabati house. Because they couldn’t stand giving so much money every month to the landlord. And they used that rent saving to build a house. The house I call home now. There’s another couple who gave me a funny story. They were saving up money for something entirely different. But then an opportunity came up, and all that money they’d saved up, they used to buy a pick-up, that served to enhance that opportunity. They say that pick-up has put their kids through school.
If you can spend less that you make across your entire working life, you’ll be better off than 85% of the population.
Earn More or Cut
And yes, I know some of you are going off saying ‘I don’t make enough to save! I can barely cover my expenses!’ Call me ignorant, but someone struggling, really struggling, doesn’t have a smartphone or a computer, and bundles to read this article. Chances are, if you’re reading this, you probably can. But let’s entertain this rebuttal. If this is your situation, then there’s only one of two solutions really. The first, and obviously harder one, is to raise your income as soon as you can. If you are in a position to negotiate your salary, do so as soon as you can. Create a case for why you deserve more. Do some research on market rates. Maybe look for another job if your current one isn’t meeting your needs. Spruce up your CV. Network. If not, start a side hustle. What side hustle? I don’t know. You know your situation better than I do. But find something. Do something. Anything to raise your income level. The other option, which is admittedly a lot easier, is to cut your expenses. Yes. Downgrade your lifestyle. This option has immediate impact. And it can be done while exploring option one. This is ideally the one you should start with. But I know, and you know, that this is not an option for most people.
Slow and Unsexy
The truth is that creating wealth is slow and unsexy. Finance is not fun. There’s a reason I haven’t written about it in a while. And it is not meant to be fun. Every time finance has gotten exciting, it has ended up causing damage. Every time something exciting has come up, it has ended up crushing and burning. People want to make money. And whenever an easy way to make money comes up, people jump on it (basic human psychology), and it becomes a bubble that bursts sooner or later. If you got in with the hype, you’ll get burnt. A good example is that I’ve lost money with crypto. Real wealth is built slowly over decades. It’s saving slowly over time to take your kids to good schools. It’s saving over time too buy that piece of land. It’s leaving that piece of land over ten years, only it find it has tripled in price. It’s buying a stock and forgetting about it for 11 months - until they send you dividends - and then forgetting about it for another year. Only to find out it has doubled in price.
If you’ve read ‘The Millionaire Next Door’ you know that most of the millionaire families are actually the biggest penny pinchers. You know that most of them are in their fifties. Not in their twenties or thirties. You know that they started a local business long ago. A mostly boring one. It’s the car dealer. The hardware owner. They are your regular Joes. They have a nice house, but not the nicest in the neighborhood. They have a nice car, but not the nicest in the neighborhood. Their kids are in private schools. Maybe abroad. But they still have a budget, or at least keep track of their expenses. Even with all they have.