Save and only then invest

TOO many ambitious individuals fail financially because they lack the knowledge, guidance or patience to lay a firm foundation for future economic triumph.

Most people try to save whatever money they have left after all their expenses are paid. That’s why “most people” don’t save and are perpetually broke even if they mask their impoverishment with credit card charges they can’t pay off in full each month.

Yet in every country a wise minority has cracked the simple code of long-term financial success: Save first, then spend what’s left.

It’s just a tiny behavioural tweak that causes stupendous differences in economic outcomes.

Of course, saving alone will not cut it over long time horizons that extend for decades because of inflation’s snowballing erosion of our purchasing power.

That’s why we should also nurture an investment portfolio as a lifelong discipline. However, saving should always come before wise investing. Here’s why: The reason the core discipline of saving consistently should be established before we embark on a lifetime of savvy investing is that we should possess seeds of our own to sow into the soil of different investment fields in anticipation of a rich, varied harvest.

I’ve been teaching this lesson for so long that while I was researching content for this column, I stumbled upon the website of a US-based financial planner who had quoted me on this subject! I was flattered. Here’s my quote:

“The reason saving comes before investing is that you need to have seed before you can sow it in anticipation of a harvest.”

So, before young financial planning clients are on boarded into my professional practice, I try to recalibrate their expectations if they say they only wish to invest.

FINANCIAL HEALTH

First, I applaud their enthusiasm and commitment to the wonders of true capitalism.

I then tell them, firmly, they must show me they have what it takes to succeed over the long haul.

By that I mean I grant them the opportunity to exhibit patience and discipline — to me — by first saving money... slowly, sensibly and steadily.

As you can imagine, my rigid, archaic approach doesn’t sit too well with some people.

Since I hate leaving anyone un-helped and hanging out to dry, I direct such individuals to SmartFinance, the resource site developed in tandem with FPAM (the Financial Planning Association of Malaysia).

This page: https://smartfinance.my/ planners helps them (and might even help you) shortlist, by location, other viable licensed financial planners in Malaysia.

Despite my willingness to reject business opportunities that don’t perfectly dovetail with my defined practice parameters, enough people appreciate my candour to keep me busy.

I promise those teachable individuals that I will guide them step-by-step on their multi-year journeys to financial freedom.

The early steps of that roadmap to financial health include learning the vital process of budgeting and saving some money each pay cycle before they focus on spending the balance of their net monthly income.

In an age of irrationally surging cryptocurrency prices, what I’m advocating will sound archaic and outdated to some.

But those who believe my approach makes sense will pay close attention to 20th century philanthropist and insurance magnate, W. Clement Stone.

He declared, “If you cannot save money, the seeds of greatness are not in you.”

Whether you agree with Stone or not, you must know saving money is how you accumulate your reserve or emergency buffer fund (EBF).

And as Rachel Cruze puts it in her book Know Yourself, Know Your Money:

“Having an emergency fund isn’t optional. At some point you're going to need one. If you don't have any savings today, the time to get your house in order is right now.”

INTELLIGENT INVESTMENT

Trust me, it doesn’t matter how old you are today or how profligate you’ve been in the past. Tomorrow’s a brand-new day. So, make it a great one by committing to save money.

Then imbibe the mechanics of business to subsequently transform yourself into a higher calibre investor.

The greatest investor of all time is, in my opinion, Warren Edward Buffett. He will turn 91 in August. When Buffett was 19, in 1949, he read this sentence in a book — Benjamin Graham’s masterpiece, The Intelligent Investor:

“Investment is most intelligent when it is most businesslike.”

I don’t think I need to go on for much longer in this vein. By now, you should know both saving and investing are much higher value activities than splurging money on inconsequential baubles.

All of us want a better life for ourselves and our families. Two great ways of securing economic uplift are to save some of our money first, before spending the balance, and, second, to gradually learn to invest wisely.

If you’d like to personally ask me questions on those twin life skills, you’re welcome to attend my next free webinar The ABCs of Financial Planning with Rajen Devadason (sign up link: https://learn. rajendevadason.com/webinar-abc-of-fp) on the night of April 5.

Between now and then, do yourself a favour and start putting together a liberating personal budget on paper or in an Excel spreadsheet.

Also, for great guidance on budgeting basics, do read this excellent article, Elements of a Financial Budget by Amelia Jenkins at https://pocketsense.com/ elements-financial-budget-7747464. html

Enjoy your homework.

Read his free articles at www. FreeCoolArticles.com; he may be connected with on LinkedIn at www. linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com. You may also follow him on Twitter @Rajen Devadason and on Clubhouse (Rajen Devadason).