Saving Money to Make Cash Available for Investment

If you want to build a investment, it will begin on the premise of having enough muney left. For saving money to invest, our first suggetstion is: do not use credit cards to keep pace with the balance of the loan.

Centuries of research and real life experience have proven that business ownership, including investments in common stocks, beat every other asset class on an inflation-adjusted basis. Yet, you cannot begin to invest unless you have cash left over at the end of every month. Depending on your vocation and financial condition that can be a tall order. There are some ways you can increase your cash available for investment and today, we’ll outline four of them.

1. Do not use credit cards. Instead, use charge cards that generate points to help stretch your purchasing power.
Every month, you pay for groceries, gasoline, car insurance, and a host of other necessities to get by in the modern world. It would be idiotic to put these on your credit card because the interest rates are so high, you’d very quickly enter negative amortization (where your payments don’t keep pace with the balance of the loan itself, which goes up as time passes).

A better way would be to use a charge card that you have to pay off at the end of every month but that generates points that you can redeem for cash back or rewards. For instance, if your household expenses were running, say, $385 per pay period, or $10,000 per year. Some cards from leading banks offer as much as 3% or 5% cash back, which would add $300 or $500 to your pocket each year. If you were to add that to your 401(k) or Roth IRA and earn 10% per year, the average rate of return for stocks over the past century or more, you would have nearly $82,250 in extra money over thirty years. That should reasonably generate after-tax income of $4,112 per year, or $342.70 per month. By simply changing the way you spend, not even the amount, you can end up with a whole lot more money in your pocket.

2. Expand the pie by generating excess revenue over your fixed expenses
Your day job pays for all of your regular expenses. It covers your food, shelter, toiletries, and other basic needs. It would be difficult to cut expenses if you are already living on the edge. Instead of cutting the pie into different slices and reducing your standard of living, consider expanding the pie by adding highly profitable sidelines to your income. In the past, I’ve written about a family member of mine that works for a major airline that uses that job to cover her living expenses, retirement contributions, and health benefits, but started an online business so that all of the excess money could build her investment portfolio, buy a nicer house, and get the quality of furniture she wanted.

This will help you see an immediate impact in your standard of living because investments require a certain degree of critical mass before the amounts begin to matter (e.g., a 10% gain on a $10,000 portfolio is $1,000 whereas the same gain on a portfolio for $3,000,000 is $300,000 – far more money in absolute dollars for the same amount of risk, reward, and effort). With a business, you could theoretically prosper and make $300,000 from almost nothing if you work hard enough.

3. Follow the opportunity
If you live in an area or work for a company that has no hope of long-term prosperity, get off your butt and MOVE! I don’t care if it’s your home – your ancestors had to make a choice to follow a better life and that’s how you ended up there in the first place. If you’re getting by as a day laborer in California, you might be paying $50 a day for a room to sleep – that’s $1,500 per month. In the Midwest, you could afford a mortgage on a good home for about half of that! Live in a hurricane zone? Move! Live in the inner city with no job opportunities? Move! When hunting for opportunities, it’s a lot like fishing because there are different areas where everybody, regardless of skill, manages to catch something and others where even the most talented struggle to feed themselves.

4. Own cash generating assets / Do not despise the day of small beginnings
It’s true you can make a lot of money owning paintings and collectibles. When you’re starting out, though, you’re going to find it considerably less stressful if you own cash generating assets because you’ll always have funds coming into your bank accounts, providing greater liquidity and flexibility. As one author has pointed out in the past, buying an $800 suit doesn’t do a lot of good when you could sell it for only 5% or 10% of its value at a garage sale. The same money spent buying an older model vending machine and placing it in a busy office will not only retain its value (you can always sell the machine), but give you cash income as you empty out the coin bank every day from your customers.

You might say, “What good is that going to do me?!” and throw your hands up in the air. My wealth was started with my very first “cash generator” that paid out roughly $16.44 pre-tax a day. Now, only ten years later, that’s a rounding error at all of my businesses. As King Solomon said: Do not despise the day of small beginnings.

Note that this is different from number two (see above). When we talk about generating more revenue to expand your income pie that deals with your labor, or efforts. This deals with how you invest your capital or money.