Which Is Your Best Source of Money? Investing, Saving or Earning?

Multitasking, multi-source of money?

Summary

  • Which Is Your Best Source of Money? Not always what you think.
  • You should maximize your income and minimize your expenses first.
  • Maybe you should invest in yourself.
  • Investing is an important stage – later.

What Do I Make with My 1,000 Dollars?

One of the most common questions of people – like small investors, savers, employees – used to be: “How should I invest my 500, or 1,000, 10,000, etc. dollars?” But I think the more adequate question for many of you is different. How can I increase my incomes, and decrease my expenses? That can be your best source of money.

Why? Look at the table below. If you have, for example, 1,000 dollars, you can’t have a decent monthly amount of interests that matter for you. With three percent interest annually, which is a relatively good value nowadays, in 2020, you get $30 a year. That means $2.5 a month. In most countries, that can buy almost nothing. A coffee or a beer in some cities. (Of course, different in every country. You can substitute dollars with your national currency, and prices with typical ones in your region. Jut make your calculation.)

Monthly Incomes From Interests ($)

Capital ($) => 100 1 000 10 000 100 000 1 000 000
Interest rates:          
1% 0,083 0,833 8,3 83,3 833,3
3% 0,250 2,5 25 250 2 500
5% 0,417 4,2 42 417 4 167
7% 0,583 5,8 58 583 5 833
10% 0,833 8,3 83 833 8 333
15% 1,250 12,5 125 1 250 12 500

Saving Money Is Great

That doesn’t mean you don’t have to invest your 500, or 1,000, or 10,000 dollars. In many years, and with the power of compound interests (interests on interests), these amounts can also be very useful for you. What I’m telling you is that you better don’t bother very much about the interest rates and don’t take too many risks. (Unless you want to retrain yourself as a financial expert.) In your situation, it is better to learn how to earn more and how to spend less. It is much more effective for you if you concentrate first on your incomes and expenses. An example. Let’s suppose you can save those $2.5 – every day. You drink every day a coffee or a beer less. Or, you drink it in your kitchen instead of the bar, coffee shop, fast-food chain, etc. If you can save $2.5 every day, you save approximately $75 a month.

30,000 Dollars Versus 1,000

Guess what… This saving is the same amount as if you had $30,000 in the bank, bearing interests of three percent annualized, instead of 1,000! Saving is much more important at this initial level than choosing the right investing vehicle. (With 2.5 USD a day, you save 900 dollars a year, + interests.)

But I said, “earn more and spend less”. How to earn more? Maybe you can build some “passive income”, as many financial blogs are claiming. But maybe not. Because building passive income is mostly some sort of hard entrepreneurship, and maybe this is not for you. Not everyone has the necessary skills, or the willingness to do that. Making your own business is hard and risky, as I explained it here.

Which Is My Interest, to Invest, Save or Earn Money?

Making money from investments can be very dangerous, risky. It is also tough to raise sufficient capital by only saving penny after penny, dollar after dollar. It can also be difficult for many to earn more. It varies a lot depending on your country, city, profession, company or individual skills. The best tactic could be to combine the three methods. That will give us the best chance of raising funds, collecting capital. Saving is a matter of good plan, self-control, perseverance. Investing, especially initially, with small amounts and secure forms, can also be quick and easy. For many, earning more is the greatest opportunity to advance.

How to Earn More?

But how to earn more? That is very different in the case of every individual. The first question may be to decide whether the work you are doing is being paid well. Can you request a pay raise? Do you have the opportunity to make more money in another company, another city or another similar job? If not, the question is, how can you move forward?

How Much Interest is Real?
Inexperienced people are often deceived by the promise of unrealistic high interest rates. Such frauds or scams can be even more common in a low-interest-rate environment. If something sounds too good, it is definitely a scam. But the states or the central banks also often manipulate interest rates by keeping them too low, below inflation. This puts money out of the pockets of savers. Instead of the simple (nominal) interest rate, always focus on the real interest rate. If the interest is three percent, but the inflation is two, the real interest we get is only approximately one percent. In many countries, real interest rates are negative today. It is advisable investing in other assets, such as education or home modernization, real estate. If you have one million dollars, and it brings only one percent real interest a year, you receive 833 dollars a month. Not enough to live in expensive countries. If you invest in some dangerous, risky assets like shares or real estate, you can lose all or most part of your money. Investing is a difficult profession. Many inexpert people lose their money. (More about real interests on Wikipedia or  Investopedia)

Picture: “Reichsbanknote”, Germany, 100 Trillion Mark, 1924 (Source: Wikipedia) 

Then, let’s learn another profession? Or should we look for education in the same industry where we already have our main job? Or you should learn a language? Or do you need computer skills? It’s easy to calculate that the best way to invest your $500, $1,000 or $2,000 would be to go to a course or evening school. That education could bring you the most profit, future income, not the interest in the bank.

The Best Source of Money: Yourself

Let’s see an example. You earn $1,000 USD at the moment. You invest $2,000 in some language school courses to improve your English knowledge (or Spanish, French, Mandarin, or another). After that, you manage to earn in your job only five percent, or $50 more per month. That’s $600 a year, or thirty percent of your initial $2,000. Where do you get a steady 30 percent interest these days? Of course, nowhere. Your $2,000 was fabulously invested.

Parents should consider investing their money in the education of their children. It can be the far most profitable investment of their life. But more about this later here on Agelessfinance.com.

My Real Interest Is… to Build a Wealth

Of course, I don’t want to say you don’t need to invest your money. Your long term goal should be building wealth, a capital. To let your money work for you later (with your continuous supervision). I want to say that for most people, and at the beginning, earning more and spending less can be the best source of money. Much more important than struggling with the right investment method or 1-2 percent interest rates.

The word interest has various meanings. It can refer to the interests you gain in the bank. (Or you pay it if you have debts.) It can be also “a concern for one’s own advantage and well-being” (Merriam-Webster). Or, “something that gives you what is important or necessary or helps you in some way” (Cambridge Dictionary). Consider what your “real financial interest” is. Which are your best sources of money?

More Interesting Readings for You

References:

Merriam-Webster Cambridge Dictionary

Disclaimer

I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research, or consult your advisors before making any investment or financial or legal decisions.

Pictures not marked otherwise: Pixabay.com

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