Should you invest first or spend?
It is very important to understand the importance of investing before spending. Spending and investing, both provide gains. There are some who believe in spending their earnings lavishly and invest whatever they are left with in the end. This is the first kind of person and is looking for short term satisfaction or short term gains. Spending more than investing will give you immediate satisfaction in the form of the purchased goods or service but it will not hold benefits or add value to your long - term financial goals.
The other type of person plans out smartly. He invests first and then spends the remaining sum. He understands the importance of having future goals. He sets them as priority and makes sure his investment concentration is more than saving. He makes a conscious decision to invest a certain amount in various financial instruments while having a minimal expenditure margin. He has the sound knowledge that future expenses partly depends on his current financial plans and change of income in the future. He has the absolute understanding of changing lifestyle expenses and income in the future and safeguards himself by investing more than spending. It can be explained simply with this example: When this person owns a bag of seeds, he chooses to plant it for future benefits.
Spending is disbursing money for living expenses and others, while investing is spending your money to build your financial wealth. When you start to spend less on things that don't matter in the long-term, you can put that extra money in the right investment vehicles to set up for a secure future.
Generally, you spend money to preserve your lifestyle, which includes paying off bills, utilities, and rent. You also expend money for food, transportation, debt, subscriptions like Netflix and Spotify, phone bill, and other fixed expenses. These are the type of expenses that you can no longer recover—gone.
Investing is purchasing items, like an investment vehicle, that serves you in the future. These are the smart purchases you make that can bring in more money. It means using your money to get bigger gains and rewards. You put it into a vehicle where there is an opportunity to grow when done right.
While you invest to earn more money, it also comes with risks of potential loss. It’s crucial that you review your financial situation, your goals, and investment options to find the best one that suits your needs and financial status. When investing, it’s critical that you don’t just put your money in investment vehicles willy-nilly, but you invest wisely.
- One should manage their spends and control their spending habits in order to have money to invest
- One should consider making a budget to cover all your expenses
- Once you have saved money, you should not let it sit in your back account alone, you should start investing some proportion of it for future benefits to achieve financial freedom
Things you should do before starting to invest:
- Have a household budget
- Be debt free
- Have adequate emergency protection fund
- Make a plan to achieve your goals