Money Girl covers 7 critical investing rules to help make your money grow safely--and ensure a happy financial future.
Many people shy away from investing money because they think it’s too complicated or too risky. The truth is that not investing for the future is one of the riskiest financial moves you can make.
This episode was inspired by Eric Tyson, who shared 20 rules for successful investing with me from his new book, Investing For Dummies, 7th Edition. I’ll highlight 7 of my favorite investing rules from his list..
What Is Investing?
People have invested money for thousands of years, in many different ways. In a nutshell, investing is putting your money to work so it generates income, asset appreciation, or both—even while you sleep.
For most people, earning an hourly wage or an annual salary isn’t enough to have a secure future without investing some portion of it. Even if you’re a really good saver, and sock away piles of money in a bank savings account instead of investing, inflation is a party pooper.
Inflation is the general increase in prices for goods and services. As prices go up, every dollar you have buys a smaller percentage of a good or service.
For example, if the annual inflation rate is 3%, an item that cost $1 last year now costs $1.03. You can use an inflation calculator to see that something that cost $1 in 1994 now costs $1.61 in 2014, for a cumulative inflation rate over 2 decades of 61%.
Your after-tax savings must earn as much as the annual inflation rate--which typically ranges between 2% and 3%--just to maintain its purchasing power. To get ahead and build wealth, you’ve got to earn much more than the inflation rate. As you probably know, even the best bank savings or money market deposit accounts barely earn over 1% right now.
To get ahead and build wealth, you’ve got to earn much more than the inflation rate.
Additionally, employer pensions are rare these days, and you simply can’t count on the government to give you enough future benefits for a comfortable retirement. That’s why investing for the long-term isn’t a luxury—it’s a financial necessity, for everyone.
When you have investments that are growing and increasing your net worth, they give you a sense of security and freedom. Having a strong financial safety net also allows you to survive unexpected hardships, and to thrive and take your life in any direction that you want to go.
Follow these 7 investing rules and you’ll be set up to grow your money safely--and have a happy financial future: