Saving,income or Investing – which is best for getting rich?

The purpose of this post is explaining the three ways to get rich: savings, income and investing and answer the question ‘which one is the golden ticket?’ By the end of this post you will have a better answer so you can enrich your life and those around you.

Investing, saving or income which will make you wealthy?

  • Conventional wisdom talks a lot about growing rich slowly using a combination of savings and income, however, there is a cost, that is life quality and time.
  • It is interesting to note that people who make real money do it in a relatively short period of time and do not sacrifice a lot in terms of lifestyle.
objective wealth
Wealth can be achieved with savings, income or investing. However, it is more about understanding capitalism and the rules of the game, good or bad.

Further, contrary to the conception of the wiz kid becoming and over night gazillionaire, most do it in their 50s after a lifetime of experience, then they start making money. So if you are not there yet, do not worry. And if you are over 50, do not worry. It takes a lifetime of modest, just getting by to pay the bills and income to get you serious about making money.   In my opinion, it takes a lifetime for people not to be afraid to try to be an entrepreneur. Lets look at the three ways to accumulate money.

invest for wealth
Money is easy to spend but hard to accumulate

Saving as a strategy to get rich

A penny saved is a penny earned. This will work, but it takes denial and time. It also depends on your income and lifestyle expectations. I sometimes think I could have lived on potatoes and socked away penny and invested the Stock Market and I would be a millionaire now. However, I am glad I did not. Why? I will never get those years back in my life and I am glad I lived and experienced life, even if it cost me something. I am glad I did not cheap out on some dark apartment that has some stinky carpet, or put off a vacation, even if it was on a shoe string.

  • People who spend money on intangible goods tend to develop entrepreneurism or at least are statistically greater risk takers. Nothing against saving as a strategy, but it just does not fit my style. I would rather focus on the income side of the equation.

So stuff that money for a rainy day and pay yourself first. However,  I think there are better ways to get rich.

I believe that if you want to make money you have to spend money. I have paid many people for one on one consulting about specific skills I needed to acquire and usually I got back many fold my investment. Stingy people might not do this. Money is meant to be spent. If you need to save read this: How to save and what to do if you are poor.

A note about credit – I do not have any debt by the way (except leverage on some investments). I believe in spending but not debt. I learned this when I worked in finance at UPS. It grow from zero to and international company with no debt. I think a modest mortgage is OK.

Income strategy for getting rich

Not a bad way to accumulate capital. However, there is a trade-off here of day-to-day time. Similar to savings there is a cost. In savings it is denial, in income it is giving up time with your family and hobbies.

I noticed when I was burning the midnight oil at the office I was becoming a boring person. My time allocated to self-development was limited and it began to show. I was becoming an old dried out businessman and gained some weight. I believe in paying the bills but corporate America sucks. The question is time or money.

You can be a careerist and with luck, climb the ranks and become like David Wallace in the TV show The Office. I have known many guys like this and I was somewhat on my way to be like this. You marry your career and it will reward you with a lifestyle which some would consider opulent. The price is high as you give up being a regular guy and your often your dreams for the trade-off of being a corporate warrior.

In 1985 I was in the Chase Manhattan Bank corporate training program. Instead I quit and hitch hiked around Europe. I sometimes wonder what if I just stayed on that career path. I know the answer. I would have had a boring life.

  • Both saving and earning an income as a wealth stragegy have the potential to make you boring, and dry up your creativity. This is the danger of pursing this strategy. Sometimes it is necessary, but creativity and spice in your life is the most important factor in achieving your dreams including getting wealthy.

 Investing – the road to wealth

My choice for being free financially is to get rich by investing. Investing is a very broad terms that needs to be qualified. What is investing?. There are two types of investing.

  1. passive investing
  2. active investing

Passive investing is putting your disposable income in a mutual fund or buying a few stocks. This is most likely unleveraged and more a buy and hold strategy. However, the key term here is passive. It means you do not have an active role in management and your fate is left to someone with less intelligence than you.

Acting investing is when you lead and drive your investment strategy. You might own your own business and deploy your own capital. Or you might actively trade stocks and options with a strategy and even leverage. The key point is you are driving and managing your capital. I believe this is why the rich have money.

Now capital comes in two forms also:

  1. Financial capital -this could include physical assets such as plant and equipment or land or it could be liquid capital like cash or near cash instruments. I have lumped physical capital in with liquid capital as it is really only a matter of liquidity. Both can be converted into something with a tangible value.
  2. Intellectual capital – This could be a talent or an idea. It could be the ability to write, create, perform, even music. This is more intangible and harder to value. Everyone has talent, by the way.

I think either one will work, but the key thing is you have to be an owner of the process. You have to be the one leading the charge. The main thing is invest your money or intellect in developing an idea. If you do this than you will serve humanity as you will bring something to market that other people desire.  Examine the richest people in the world or your country state or city. I bet most of them took the investing entrepreneurship route.

If you do not have an idea find something you like and try to replicate something that someone else has done but with your own style. I think between saving, income and investing, investing is by the far the most fun, best for personal development and profitable.

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2 responses to “Saving,income or Investing – which is best for getting rich?”

  1. Adam

    Saving = Small gross return minus taxes and inflation Good luck with that.

    Income = Return on passive investment can be good in the form of increasing dividend some corporation have increased there dividend every year for up to 25 years.It requires research since capital is not guarantied. Well run active and operating business such as franchises will cost more but will generally be safer and good investment for steady income. That can get you stemware toward financial independence.

    Investing = A full time job.
    Exactly as you mention “you have to be an owner of the process.
    You have to be the one leading the charge.
    The main thing is invest your money or intellect in developing an idea.”

    Actively trading stocks and options is not for every one. Understatement Ha Ha Ha

    I think that since we can not control what we invest in when investing in public corporations I choose corporations that have a very large single share holders. Shareholders that have enough shares that they have a seat on the board of direction generally do not tend to shoot then self in the foot and will make sure that management is not diluting shareholders.
    It works.

    1. Mark Biernat

      That is a very good method. Indirect ownership with diluted responsibility with many shareholders is not as good as someone who has a real ownership stake Warren Buffet said if you could buy any company, he would like to buy Wrigley’s spearmint gum. It is a tight run family business. UPS was owned by the managers until it went public in the 1980s. When you find a publically traded company with a lead owner who really cares about the company it makes all the difference in the world. I worked for a company like this. I got in when it was a small start up and it went public and still controlled by the founder. Needless to say the stock did very well.

      To make money either be a capitalist and that means and owner of a process, whether it is with financial capital or intellectual capital or invest in a company that is run who have a close interest in the company.

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