Serial investors love to talk about things like stocks, bonds, and T-bills. They talk about investing in real estate like the rest of us talk about buying groceries. And often times, they argue about what the best investments are. What would you say if someone told you that you are your most attractive and worthwhile investment?
A very wise financial planner once said that every adult with a steady income should be saving something from every pay cheque. He called saving ‘investing in yourself’. He was right. Setting money aside for a rainy day is an investment in your own financial future. The interesting thing about investing in yourself is that there are lots of ways to do it.
Not all investments have to be stocks, bonds, real estate, etc. Something as simple as reducing your debt constitutes an investment for the simple fact that it results in a financial return. Perhaps you have been disappointed that you do not have enough disposable income to put into traditional investments. That means nothing. You can still invest in yourself. In so doing, you might find you eventually have enough disposable income to put into more traditional investments.
It Starts with A Budget
Investing in yourself, as a means of securing your financial future, starts with a budget. A budget is a lot like the orange traffic cones you see on the street. A budget provides direction. It warns you of potential hazards and points out a way around them.
Imagine someone just starting a surveying company. He will buy traffic cones to place around his vehicle when it’s parked on the side of the road. He might use those same cones to protect himself while working in the street. The cones are a necessary part of his job.
Likewise, a budget is a necessary part of investing in yourself. It serves as a roadmap for your spending. A budget tells you how much money you have coming in. It tells you how much is going out, along with where it is going. Without a budget, your financial future will not be as safe as it could be – much like a surveyor without his orange cones.
Eliminating Personal Debt
With a budget in place, the next step in investing in yourself by eliminating personal debt. Here’s why: all debt comes with interest. It doesn’t matter whether you’re talking credit card debt, a car loan, or even a mortgage. Every time you make a debt payment, you are paying interest on the amount you borrowed.
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Let’s say you have a 30-year mortgage at 5%. Every year, you are paying 5% of your outstanding balance in interest payments. Those interest payments come off the top of every monthly payment you make. For the record, a $100,000 mortgage for 30 years at 5% will result in interest payments of approximately $93,000. You will pay almost as much in interest as you paid for the house!
What if you could pay off that mortgage in 15 years? Your total interest would drop to about $42,000. By saving more than $50,000 in interest payments, you would be investing in yourself. That same amount of money could be put into a retirement account or some other savings vehicle.
Avoiding Credit Card Use
For so many of us, credit cards are public enemy number one. We get so used to buying what we want on credit that we think nothing of the interest credit card companies are charging us. What if we stop using credit cards except as a replacement for cash?
It is possible to use a credit card to pay for everything you would otherwise pay cash for. When the bill comes due at the end of the month, you pay it in full. This sort of practice affords the opportunity to use credit cards without ever paying a penny of interest.
On the other hand, using credit cards to buy things for which you do not have the cash means making monthly payments with interest. Yet there is another way to do it AND invest in yourself at the same time. It starts with a savings account.
Set money aside in a savings account every time you get paid. When you need to buy a big-ticket item, use the money in your savings account. Then rebuild the account by making monthly payments with interest. Instead of paying the credit card company, you are paying your savings account. By the time you get done paying off that expense, you have more money in your savings account than you started with.
The idea of investing in yourself through a savings account is based on a concept known as infinite banking. People who practice infinite banking become their own lenders. Some do it with savings accounts. Others do it with whole life insurance policies.
A whole life insurance policy is technically an investment. You pay on your policy for a set period of time – let’s say 20 years, for example – before you are fully vested. Being fully vested means that you own the entire value of the policy regardless of when you die. But wait, there’s more.
The money you pay into the policy is being invested on your behalf. It is generating a return, just like stocks and bonds. The end result is a life insurance policy worth far more than you paid for it. You can use this type of policy to practice infinite banking. How? By borrowing from your vested amount.
You are allowed to borrow from a whole life insurance policy up to a certain amount, without penalty. Borrow some cash to make a big-ticket purchase. Then, just like you would with a savings account, repay what you borrowed with interest. You will end up growing the value of your policy through the extra interest you contributed and the increased return on the policy’s investments.
Investing is a wise strategy for securing your financial future. Even if you cannot afford to put money into traditional securities, you can invest in yourself by creating a budget, establishing a vehicle for savings, paying down your debt, and avoiding credit cards.
It is not hard once you learn the principles and begin implementing them. Doing so is worth the time and effort, by the way. Remember that you are your most attractive and worthwhile investment.