Yellowstone Partners Blog

It’s What you Buy

Growing up with a tightwad father, I learned that the only way to become financially prosperous was to scrimp and save, never buying a thing.  But as I got older, I discovered that I made so little that I could never save enough… I determined that my path to riches was to make more money.  As I’ve made more money, I’ve been able to set aside more, yet inflation has whittled those assets away.  The dollar I saved 10 years ago, might only buy me 80 cents worth of goods today.

So if saving my money won’t make me rich, and earning more money won’t make me rich, what will?

I’ve determined that it’s not what you save, it’s not what you make, it’s what you buy that will truly enhance your financial standing.

Every dollar you earn will buy you one of something from one of the following four categories:

• A service that will gratify you for a moment.
• A good that will be expended.
• An asset that will depreciate.
• An asset that will appreciate.

In the first three cases, your dollar has been spent.  In the last, your dollar has been invested.

Whether you’re talking about the Goose that lays golden eggs, or the servants who were given talents, there’s no more popular subject for analogies than the virtue in foregoing what you want today for what you want in the long run.  That is especially true when it comes to investing.

The simplest key to investing is to start early because the power of compounding interest is multiplied by early gains.  It’s so tempting to spend those first disposable dollars on fleeting wants – temporary services, expendable goods, or depreciating assets, but the simple truths are as follows.

• A dollar spent is a dollar gone tomorrow.
• A dollar saved is a dollar half-gone tomorrow.
• A dollar properly invested is two dollars tomorrow.

Investing is about making your money work for you, and the earlier you start, the longer you will have it in your employment.

*These figures represent a smoothing of an annualized return of 8% on monies invested.  Investing entails risk, and while there is potential for gain, there is also risk of loss.  Past performance is not a guarantee for future returns.  Investing may not be suitable for all individuals.