- Personal Finance
SAVING IS A MUST IN INVESTING - Even if you have nothing to save
Money put away with the intent of using it for additional investments was, according to written accounts, the reason Mr. Carlos Slim Helu, the Mexican billionaire, became the world’s richest man.
During the 2008 world economic crisis, when most of the investing world was scurrying for a way out, Mr. Slim used his pile of money, made from operating a telecoms business, to buy all valuable but discarded stocks he could find in the market.
When the smoke cleared and the world economy began to recover, the man who was virtually unknown to most parts of the globe, except maybe in Mexico, suddenly became the world’s richest man! He took the crown from Warren Buffet.
Warren Buffet, considered the most successful investor ever, dethroned Microsoft Founder Bill Gates, the man who was at the crest of the Forbes world’s richest list for 13 years! Buffet is one of those who are saying that “you should pay yourself first” - that savings is not what is left after all the expenses. It should be what you put away before you plan your expenses.
But then, you would say, hey you are talking about the richest people in the world. Those guys have all the money. They can save all they want. They can buy the whole universe and still have money left to save!
What about us mortals? What do we save if our income is even less than what we need for our basic necessities?
The thing is, you can make arguments anytime why you cannot save and you will probably be right, every time!
Except, one time, I met this guy who said they were so poor when he was still a young boy he had to walk several kilometers every day, without slippers, to a public elementary school so he can have a free education. His parents cannot afford to buy him a pair of slippers or pay for his daily fare.
He usually brings packed lunch (consisting mainly of steamed rice and a little salt) and he was given a very small amount of money for viand whenever the family had a little extra, which happens once in a blue moon. After buying his viands, a few times, from a small food stall that gives free soup to its regular customers (and after developing rapport with its owner who saw that he cannot always afford to buy what he was selling anyway), he stopped spending his money, except for some token purchases of the cheapest available items, so he can continue to go to the food stall for the free soup that the owner, who took pity on him, continued to give him whether he buys anything or not.
The boy saved his money but didn’t use what he was able to save on luxuries like a pair of slippers or a ride home. Instead, at a very tender age, he thought of the things that he can afford to buy near his school which he can resell several kilometers away - when he reaches home.
Hardships in life, at one time, made him think of selling one of his eyes so he can continue his education. He was saved from that by a Good Samaritan, but it was his ability to save whatever little resources he had that eventually made him the owner of one of the biggest ship management and manning companies in the Philippines.
The funny thing is, many of those who have money say they cannot save because they have “nothing” to save. Yet there are a few of those who really “had no money” but saved anyway, and end up becoming super rich.
The reason that whatever money they have is not even enough for their basic needs is a mere excuse of course. See, if we go by 10% savings (though there are claims that savings should now be 15%) that will not really be that big an expense. If you earn say, $8 per day that would only be 80cts. I mean, if you know how to survive with just $8 per day won’t you be able to live off $7.20?That's why the gurus are suggesting that savings should actually be the first item in your… well, should I say, “list of expenses”.
Saving a small amount of money continuously (no matter how small) can do wonders. It is a given fact. This is akin to the so called DRIP investing plans wherein small fractions of dividends from an earlier investment are used to buy fractions of shares of the company you are invested in. I see it, too, as the reason why some banks are offering initial investment of very small sums of money coupled with monthly automatic deductions from a client’s bank account to be added to the initial investment.
It is a great way of preparing for the future.
The problem with saving however is, a lot of people do not know what to do with it. Sometimes, they cannot see beyond the small amounts they are putting aside, they see the pettiness of what they are doing, they get discouraged, they lose patience, they get bored, they easily give up – or they just squander what they have saved.
Now, if they can just let the money sit wherever they are keeping it for a while, say in piggy bank, or a real bank, regardless of how little interest it earns, and just keep adding to it, they can put it to better use when an opportunity eventually presented itself – like say, in the case of Mr. Slim.
For this to become effective, however, our newbie investors have to know the right stocks to buy. Shares of reputable companies are the better bets. Those are the ones that will have a better chance of recovering despite economic crises or big dips in share prices.
Think, for example, of what you could have added to your stock positions after the Fed announced that it is planning to reduce its $85 billion monthly bond buying activities and the market dipped!
Nothing of course is guaranteed.
But imagine what could have happened if, and I am just saying if: 1. you actually had chosen the right stocks you, 2. you are confident of the choices you made, 3. you have decided to stick it out with those choices for a considerable amount of time, 4. you did not sell, unlike many others, when the Fed announced the reduction of the (QE) $85-B monthly bond buying because of the apparent improving U.S. economic conditions, 5. You managed to save enough and able to use that savings when the market went down fast (the few days following that announcement) to buy additional stocks – those same stocks that were doing well prior to the sell-off and, 6. The market recovered and went even higher than before - the way it now seems to be doing...?