Beginners Guide to Saving, Spending and Investing.

Today we are going to talk to you about how much of your money should you be saving, spending and investing.

Does the amount of money I save, spend and invest depend on how much money I'm currently earning?

Really important question, obviously, it somewhat depends on how much money you're making, to start with, but let's assume that you're just making a living, right, you're getting through and you're offsetting some debts. How much money you save, spend or invest depends on how much you have to put out to other people for debt that you've incurred, so the first thing I want you to think about is the standard stuff every financial planner is going to tell you to do and that is, get rid of the debt.

There's two kinds of debt; bad debt and good debt. Good debt is the stuff you get from maybe a house loan or something where you're paying three percent, that's a pretty good debt and if you can build a portfolio that's growing at fifteen percent a year, then you probably should hang on to that debt and not pay it off and just keep the money working.

Bad debt is typically a consumer debt, that's the stuff you get on your credit card, you miss one payment and you're at twenty plus percent per year. If you're making twenty percent a year, you're killing it. So the first thing to do to make a bunch of money on your money is to stop giving someone else a bunch of money on theirs, so you should get rid of that consumer debt.

Warren Buffet was on an elevator and there were a bunch of insurance guys on the elevator with him and there was a penny lying on the floor and all the insurance guys stood there looking at the penny and wondering if Buffet who is famous for saving every penny was going to pick it up, Buffet didn't pick it up.

They get to his floor, he steps off the elevator, looks at the guys, bends over and picks up the penny and with the coin in his hands, he said, "beginning of the next billion. And the truth is, it's actually the beginning and when you start to actually get high rates of return, if you're getting a gigantic rates of return, let's say twenty five percent a year, I promise you, it becomes an organic part of who you are to save money, you won't spend it when you know, how much you can make on it, but since you don't know how much you can make on it, spending it seems to make sense because if you stick it away in a savings account, making zero point one two percent per year, it's nonsense, it's never going to change your life.

So the critical thing for you to do is to learn how to invest, the saving, the spending, the investing is going to come very naturally to you, once you know how to make money on money.

How can I go budgeting how much I have to save and invest?

Budgeting is important, it's hard to do, but it's important and it's more important when you have nothing than when you have a lot of money and that's pretty obvious. So here's one of the things that I like to tell people to get them thinking about how much they have to save and invest, it's to do your number.

Before we really think about budgeting, the critical thing is to figure out how much are you going to have to have put away and then work and the n work that back and the budget should flow out of that a lot better.

Should all of my savings be invested instead of sitting in a savings account? Or is there still a time and a place for holding onto my money?

Yeah, good question, holding on to my money. Well let's just have as
a basic fundamental point of view that we're going to want to have some emergency money and that's going to be the first money you put away, so you've got to have money there in case you get laid off, in case you have an illness in your family, in case something else happens and you have a big expense, you got to have some cash there, so we don't want to have it just all the way to the fire wall.

I'm saying that in part because all financial advisers are trained to say that, but once we consider what it's like to start with nothing and have nothing saved and then all of your money is being saved so you can have six months of capital to live on if there's an emergency, you're going to have to get a little more aggressive I think when you're just starting out.

I'll tell you what I did, I put it in there, I started working every penny I had and tried to build that money, one of the reasons that I could do that is because the investments I was putting the money into were liquid investments, that is, I could get my money back out quickly. So if you're starting out and you can put your money into stocks, one of the advantages of stocks over real estate or I'd say farm land or something like that, is that you can out every penny out there into it because your emergency fund is the money sitting in the stock market, you can liquidate it on a one day notice, get it back out and then you've got it available to you.

Now, would you maybe have to liquidate it it at a bad time, yeah that's possible, but if you're starting with very little money, you're going to have to take some chances, so I'd say, if you're starting very little, then put it all in there and keep it liquid and if you have more, let's say a hundred thousand dollars or so, then you can put away some money for six months and just have that sitting in cash.

How can I find out how much money I need to save or start investing in order to retire by a specific age?

Well, you really need a calculator that's built to give you the right answer and most of them didn't take into consideration the impact of inflation on the money you're about to retire on. I've got to tell you, inflation is brutal.*