Savings – the first step to investing well

There’s a great article in today’s Globe and Mail entitled “Want to invest? Learn to save first.” Read it. It is fantastic.

Or at the very least, let me tell what I think the most important message is. If you want to get rich, you have to save money. Plain and simple.

People get excited about the stock market. We want to pick investments that will out do our friends and family – have a little something to brag about at the next cocktail party. “I made a killing on XYZ stock last month, bought it for $2, sold it at $8 just before the bottom fell out. Looks like the wife & I will be cruising in the Caribbean this winter.”

A nice story. But honestly, for the vast majority of us, the money in our savings or retirement accounts is going to accumulate over time not from capital gains, dividends, or interest, but from our own contributions. It’s quite simple, really: how can we expect to earn income on money we haven’t contributed?

The lesson here: start saving. Yes, this is easier said than done, but put aside some time to take a good look at your finances. Create a budget. And make a plan to save. Once you have built up some savings, then you can sit down and ponder the investment possibilities.