This is Part 2 of an extra-special Whiteboard Wednesday series where I’ll walk you through the basics of investing. If you missed Part 1, click here to go watch that now.
And you read that right—You don’t have to be a genius to invest better than most pros. By simply following this series, you’ll beat 70% of professional investors. Sound good? Great. Let’s dive in.
First Up? Invest For the Right Reason.
For a lot of you, you may be interested in investing because your uncle or cousin was like, “Hey, are you in the stock market?”
That’s not the reason you want to invest. You don’t want to gamble. You don’t want to speculate.
You want to be an investor—to have the ability to see opportunity and deploy your money in a way that will grow over time. I like to think of it as leverage, but not in the “other people’s money” garbage sense that you see on an infomercial.
Give Your Dollars the Ultimate Job—to Go Get More Dollars!
The power of investing is in leverage. Think of leverage in the functional sense; it’s like a simple machine. I can’t carry a piano for very long by myself (not very long at all!) but, if I use a lever, I can hold that piano for quite a while.
The idea is the same with investing. You leverage the dollars that you have now to go out and recruit more dollars. Think back to our Rule 1 of budgeting, where you’re giving every dollar a job. The job of some of your dollars is to essentially be points of leverage. That’s how you build wealth.
The average millionaire from Thomas Stanley’s Millionaire Next Door, which I mentioned in last week’s Whiteboard Wednesday, is, on average, using 20% of their dollars to go out and employ other dollars.
So, with Rule 1, you can say, “Hey, if this dollar can go out and recruit another dollar over the next eight years, and that dollar can go out and recruit another dollar …”
… that’s when you have a good thing going.
As we get further into the “how-tos” of investing, you’ll recognize that all of it points towards this idea of leverage. We give some of our dollars the job of basically recruiting other dollars.
Do I Really Need to Invest? (Can I Just Save My Money and Call It Good?)
So, investing. What’s the reason? What’s the purpose behind it? Why do we even want to? I mean, why not just save your money and not worry about it?
The end goal, and this might sound a little Scrooge McDuck-ish, is to build wealth. Now this doesn’t mean that your motivation is suddenly money.
Let’s say you’ve met someone and you say, “What gets you up in the morning?” and they say, “Money.” You’d look for an exit as quickly as you could. That person would be boring. That will be a very boring person.
… but if you were to say, “What’s your purpose? What drives you?” and someone says, “I’m passionate about sailing” or “I’m passionate about my health” or “I’m passionate about helping these people in these situations” or whatever—that could be interesting. That’s where you could deploy your resources in a way that does good.
And the wealthier you are, if you’re a good person, the more good we’ll have in the world. Right?
It’s Not About the Money (Well, Not Exactly)
Building personal wealth has an important job: it sets you up to retire without financial stress. I’m not saying that you’ll just live on some island. (Although, if you pull that off, that would be cool. Please invite me.) But you want a comfortable retirement.
Building wealth helps you do the important things—like pay for your kid’s wedding. Or maybe buy a car. There are all sorts of good reasons to want to increase your wealth. Just make sure you’re clear about the reason that you’re investing, and get really comfortable with that.
Next week, we’ll get into the meat of things, but first it’s important that you recognize that the reason to invest isn’t because you’re supposed to, or because someone told you that you should. You invest because you want to become wealthier and have the freedom to live a life that’s meaningful to you.
See you next week!
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Your Next Step
Budgeting is not restrictive. You won’t be spending less, you’ll be spending right. So what do you have to lose? Except all that debt and stress?