Unless you are a lottery winner or an heir to a vast fortune wealth only comes through the application of discipline over a sustained period of time, measured in decades rather than days. If you are working you should be saving. There can be no excuses for not doing this.
Failure to save for the future results in expensive borrowing when you need extra cash in the short term and living on the breadline in the longer term. Where should you invest this money? A good friend and respected colleague uses the following analogy. A person’s money should be split into 3 pots he says: first the kitchen table representing money needed to pay the bills and everyday living expenses; second the fridge representing medium term saving such as emergency money to cover unexpected expenses and goals up to 3 years away; and lastly the freezer representing longer term investing such as investing for school fees and retirement.
Of course making sure there is always food on the kitchen table is essential but sometimes we need to raid the fridge to do so and in extreme circumstances we may also need to raid the freezer. However it is only possible to raid the fridge and freezer if they are first well stocked. The best way to keep the fridge and freezer well stocked is to put some food [money] into them every time we get paid.
So set yourself a target for the amount you will save (hint: if you aren’t saving at least 10% of your income you really aren’t trying hard enough i.e. you are overspending.) When your salary hits your bank account on a monthly basis, split the amount you intend to save into 2: one part goes into a bank savings account (fridge) and the balance is invested on a monthly basis (freezer). Your daily expenses met out of your income which is paid into your bank current account which is represented by the kitchen table.
If you don’t have any savings you will invest more in the ‘fridge’ at first than in the ‘freezer.’ This is because you do not want to disturb longer term investments for shorter term cash flow reasons. Once you have 3-6 months expenses in the ‘fridge’ you can invest a greater proportion in to the ‘freezer.’ But the most important thing is to save. Once the money starts to build up there is a real sense of achievement and this encourages you to save more.
I hope the above is useful, please let me know if you have any questions or comments.