Saving Vs Investing : Think like the rich man.
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I personally believe there is a great difference between the mindset of the rich and the poor in saving and investing. The poor spend almost every penny that they have got and then they start to think about saving when they do not have a whole lot to save; the rich think about making more money and continue to live a frugal lifestyle that they are always use to. I personally think it is of higher priority to invest than save during this hyperinflation period.
What is hyperinflation ? According to Wikipeida :
In economics, hyperinflation is inflation that is “out of control,” a condition in which prices increase rapidly as a currency loses its value. Formal definitions vary from a cumulative inflation rate over three years approaching 100% to “inflation exceeding 50% a month.” In informal usage the term is often applied to much lower rates. As a rule of thumb, normal inflation is reported per year, but hyperinflation is often reported for much shorter intervals, often per month.
We are living in a hyperinflation period. Gasoline was $3 just 2 month ago but today it is $3.98, nearly $4. It is an increase of 33% . How much can you save to keep pace with the increase price of goods ?
The following is a very simple dissect of the mindset of rich man and poor man on money / finance concept.
The Poor man :
a. They save money to spend in another area, not a lot of people save money to invest. It is like robbing Paul to pay Peter.
b. They save money by buying clothings in thrift store and from the saving they use it to buy toys for the kids.
c. They spend all their energy and effort to think of how to save the little X amount of money they have but the X amount does not move as fast as inflation rate.
It does not help the poor men financial standing, it is merely moving their spending from one area to the next area.
It is like my hubby who moves his junk collection from the living room to the bedroom closets, at the end of the day, his junk status comes to square one, he does not get ride of his junk, it is transfered from one area of the house to another area. And likewise, the concept applies to the poor man saving.
The rich man
1. They research on asset classes that move faster than inflation rate, for eg. the last 3 years, gold and silver price have moved way faster than inflation rate. Gold was $400 in 2006 and now it is $930 in 2008. An appreciation of 132%.
Picture courtesy of stockcharts.com
Chris Ciovacco of Ciovacco Capital Management, LLC written an excellent post titled : “2008 Asset Class Outlook” which was posted on Financialsense.com, I highly recommend everyone to read it.
2. They have passive income such as stocks that pay out high dividend. Living off Dividend wrote a very impressive post titled : “How I Made $2,667 In Passive Income In March ‘08“. I like it because it is very simple to understand and at least it is a simple baby step for anyone who has no experience in making passive income.
3. They do not depend on 1 stream of income, they diversify and have multiple incomes.
I am not sure if anyone of you have read the series of rebate check’s posts that I have written. Well, if you have picked up the silver stock (SSRI) that I have mentioned in my post dated on May 8th 2008, you would have gained a handsome profit of $24% in 13 days (less than 2 weeks). The series :
1. Rebate check (1).
2. Rebate check (2).
3. Rebate check (3).
On May 8th, the silver stock SSRI was $25 and today May 21, it is $31. It is an appreciation of 24% over a span of 13 days (less than 2 weeks).
Picture Courtesy of stockcharts.com
Say you got your check on May 2nd and invested $500 out of your $600 rebate check on May 9th, your $500 would become $620 today, May 21st, 2008. That is an increase of $120 (24%). And that is my 3 weeks gas money.
Yes, it is wise to save but it does not get you too far if you do not have much money in the first place. Now the first thing you need to ask yourself is do you want to be rich or poor ? Millionaire Mommy Next Door wrote an excellent article about 10 essentials for success and I highly recommend everyone to read it.
If you want to be rich , you need to think like the rich think, have multiple streams of income, build your passive incomes and research and invest on asset classes that move faster than the inflation rate .
In fact, I have benefited much reading a lot of personal finance blogs on Carnival of Personal Finance site; and whenever time permit, I will participate in the carnival. I highly recommend you to visit Carnival of Personal Finance site and I am sure you will benefit as much as I do.
This post is submitted to 154th edition of Carnival of Personal Finance which will be scheduled on Mon., May 26, 2008 and will be hosted by Canadian Dream: Free at 45
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I think the podcast, InvestTalk offers very sound advice on investing by getting at what kind of investor you are. Everyday people can call in and ask questions related to stocks, bonds, real estate, you name it. I wholeheartedly recommend subscribing to their blog and listening to their weekday radio show and podcast.
check them out, they helped me to start thinking like a rich man!
http://blog.investtalk.com
Is anybody ready for this ride? I say, “I think we are.” But it is ‘think’, not for sure. All I know is that we must trust God and keep working hard. I am thankful to learn how to save and invest and earn money. Thanks for writing Jamy.
Rachael,
You are most welcome. I hope you understand I am writing this to remind myself because I do have the poor mentality.
About the God part, I think as Christians, we are guilty as charge. This is my humble observation about American Christians, a simple dissection :
1. This group believe being poor is a virtue, so they think like the poor, they take handout from government like any others. They think it is their right.
2. This group think like the rich but their concept of rich is not God kingdom minded, their concept is like any others. They work hard, they acquire wealth, they live in the white picket fence suburb home with big swimming pool. Their Christian God only live on Sunday. Their concerns do not extend outside of their own family affairs. They live happily within their own home. They have no concern about their neighborhood, the poor (sometimes they even rob the poor for their own benefit). Their religion live only on Sunday, they could be the elders or the deacons of the church they belong. Their religion ends on Sunday. They lie and cheat their Christian fellows as if they do not know their God.
3. This group is very hard to come by and they consist of a very minority of Christians here. They are the one who has the mind of the rich but their concept is God kingdom minded. Their concept of rich is not to add another toy , add another car but their mindset is solely on the expansion of the kingdom because they understand the promise that God has given them. Their God has given them everything in this earth and eternity (they understand the concept of dominion). They do not indulge on their wealth neither they think poor is a virtue.
In fact, I think as Christians we are not the best testimonies in this country. With my limited exposure with the Christians here, I see more pragmatic Christians here than anywhere else I have lived. Many Christians I have encountered here used God as their excuse for circumstances they gone through. They said it is God will but in fact, it is their own fresh desires or faults, they said God lead them to this and that but in fact, they are the ones who wanted to do that.
Recently, I asked around at least 10 Christian people whom I knew if they knew about Angel food ministries. Most of these people knew. The next question I asked was did they tell anyone(or neighbor) who they know might benefit from the ministry ? The answer is No. The next question I asked was did they order food from Angel Food Ministry. Their answer is Yes.
This might be too simple of an illustration but from this simple event, we can come down to a very simple conclusion that Christians people (at least the ones whom I asked and the answers they gave me) do not care much about the poor but more so they rob off the poor. Why ? They do not tell the poor (or neighbor) there is such service they probably can benefit from and to add salt to the injury, they took the portion that are mean for the poor. Shouldn’t Christians be thinking of setting up more of Angel food ministry (something similar during this hyperinflation period) than their own saving from the ministry ? This is for you and me to ponder.
But, I have always learn from my Christian life that God always have a small remnant who are faithful. I am very blessed that God brought me along my life path to meet this minority group of Christian. I am a first generation Christian, my concept of wealth was not from the kingdom perspective while growing up. But, God so gracious to bring me on my life path to understand wealth from the Kingdom perspective in a Christian Enterpreneaur conference in 2006 and I am thankful about it. And I do not think it is too late that I practice my wealth acquiring from then on. Though I am a poor Christian, I have to start acquire the mind of a rich.
Hmmm… about if everybody is ready or not. I do not know if everyone is ready or not. But, I personally think the gap of the rich and poor is going to widen more and more. We are going to be more like a 3rd world here. In the third world, the rich are very rich and they live in security gated houses but their poor live their days on a day by day basic. I think one of the proud aspects of America is the affluent middle class but now I see that is dwindling away in this country. That is all I can say from my observation the last 7 years in this country.
Thank you for dropping by , Ruth. I am sure I will pop over to listen. Very informative site. Thank you. Jamy
[…] Seaykopitiam presents Saving Vs Investing: Think like the rich man […]
I have a hard time investing in the intangeable. I know that I will not make as much money per investment if I learn to garden, but I know my family will have food to eat. That is more valuable to me than money in the bank.
[…] Seaykopitiam presents Saving Vs Investing: Think like the rich man […]
Rachael,
I personally believe gardening is very useful skill to acquire, esp. when food is scare, for eg. in the deep depression of the 20’s.
However, with the present era we live in now, we cannot escape from intangible investment, our USD$ is a very plain example of intangible investment. USD$ is not back by gold after president Nixon took away gold backing. We live in a fiat currency system and it is intangible ! We cannot measure the value of USD$, can we ? If you want to buy tangible investment, don’t look far, buy gold bar and silver coin , they are currency that have been used in biblical times :).
Hmm… “That is more valuable to me than money in the bank.” I have to agree with you to a certain degree but not all. If a person have $ in the bank, he/she can buy seeds, fertilizers, sprinkle system and likewise he/she can produce food.
I personally believe God gives us wisdom to prepare for the worst to come, like HE provides wisdom for Joseph during the seven years of plenty and seven years of drought.
The problem I see all around me is that a lot (not all) of modern day Christians squander the goods God provided for them during the plenty years than actually save for the drought period that might come. But ,the irony thing is that a lot of Christians would give all kind of excuses under the sun than thinking the fault is actually them, some go as far as saying it is God will and God will provide.
I wonder how many non-Christian will laugh at us at our back or ask at the back of their mind : ” Are you guys kidding yourself or you are testing your God ?”.
Well, to read from newspaper and internet is not a first hand experience but coming back from a 4 days holiday really put me to reality that we are not in a recession but more like a depression. It is more scary that I have thought, and we are only seeing the tip of the iceberg.
Jamy
Thanks for linking to me!
I also had a similar post recently about making some gas money by buying DUG!
and congrats on your 24% return. thats awesome! keep up the good work
btw, since I was buying so many coins off of ebay, I decided to create my own ebay aff store.
check out http://frenchgoldcoins.info &
http://frenchgoldcoins.info/news
Living off Dividend,
You are most welcome.
I am learning a whole lot from you about dividend.
Glad that you stop by and comment.
Thanks.
Jamy
Cool about the gold coin store, did you build it with BANS ?
I was thinking of building a store not long ago, on med equips and scrubs.
How is your business like ?
Thanks for sharing.
Jamy
yeah its a bans site. I built it on dreamhost - not sure what platform you’re hosting on but dreamhost has some issues - check out this post if relevant.
http://www.squidoo.com/installing-BANS-on-Dreamhost
Living off Dividend,
Thank you so much for coming back and answer my question.
I use godaddy for all my hosting. I bought a no. of domain and hosted a few sites on them but I did not make full use of all my sites. In fact, it is a waste of $ on my part (not managing and planing wisely, sigh).
One of the reasons ( I know it is not an excuse) was that I have been doing my full time degree the last 2 years and it’s very intensive. I just finished my final and will be taking my board exam end of June. So, in fact, I still are working very hard on my licensing exam preparation; and that is the reason I have not put on a lot of efforts on my blogs and other businesses.
However, my first degree ( I have 3 now) was computer science in the early 80’s, (yes, I am an old bag, but never mind, I am still very young at heart :)), as they say, a geek is a geek, no matter how old they are. And that is the reason why I blog and explore the internet world.
I am looking at various opportunities to maximize my computer skill and my health care knowledge. As you know, health care related products has the biggest market in industrialized nations as elderly above 75 is the segment of population in our country that has the highest growth rate.
In fact, I am very impressed by your concept of passive income as that is something my late dad had taught me since I was young. You might not notice but I have been browsing your blog for a while already.
I hope we continue to communicate and might even consider sharing ideas and if the right opportunity present itself, we might consider doing it together.
Thank you for the link and I will read it tonight.
Regards,
Jamy
Jamy,
I also have several sites that I haven’t had time to work on.
I’ve parked them with a service that pays for the annual registration plus some. check out this post on that topic:
Earn Passive Income From Domains
A lot of the domains I’ve bought in April still haven’t been parked - I’m planning on making niche sites out of them, but there are several that I think will become big but need considerable amount of effort. These are the ones that get parked immediately.
Last quarter I made $60 from the domain parking - much much better than the Sedo or Godaddy parking & definitely more than enough to cover my holding costs for all my domains.
Living off dividend,
In fact, I have read the link that you have just posted. I even copy and past on MS word doc that I have for all articles that I have read which were interested and worthwhile keeping.
I even sent to one of my blogger friend and ask her to read it.
After I read from your post, I wanted to do the parking stuff you talk about. Like I said, I have not find time to do it yet.
Thanks again.
Jamy