“Amateur” Ways to Win the Money Game
Stunning financial success stories grab our attention, but most of those events cannot be duplicated, even by pros. We can’t start another Microsoft in our garage just like Bill Gates, or win the Powerball by getting a ticket from the same convenience store; these successes are often singular moments of preparation and luck. If and when we encounter unique opportunities, we should certainly consider taking a chance and scoring big. But over the long haul, the best financial strategies are those that keep us from losing.
1. Save methodically. If there’s any financial activity that equates to simply keeping the ball in play, it’s saving on a regular basis – paycheck after paycheck, month after month. As long as you are saving, you’re not losing the game. And the longer you can keep playing, the greater your odds of winning.
2. Look for ways to increase savings. Adding more to the pile is usually more productive than seeking a higher rate of return. Long-term financial objectives are defined as accumulation milestones, not annual performance numbers; when it comes time to pay for college, buy a vacation home, or retire, it’s how much you have that matters, not the rate of return you’ve earned along the way. To illustrate:
Option A: Save $1,000/mo. at 0.5% annual interest
or…Option B: Save $800/mo. at 5% interest.
The numbers: Option A Option B After
1 year: $12,032 $9,864
After 2 years: $24,125 $20,232
After 5 years: $60,768 $54,631
After 10 years: $123,075 $124,743
Option B is earning 10 times Option A, but it isn’t until 9 years and 8 months that Option B’s balance exceeds Option A. Yet, which task would be harder to achieve, finding another $200 each month or guaranteeing a 5 percent return for 10 years? Cash flow management – even into accounts that earn almost nothing – is a superior strategy for financial amateurs.
3. Use insurance to protect against big losses. Amateurs must avoid losing, but some losses are unavoidable and unforeseeable. However, the financial impact of unexpected losses can be offset by prudent insurance decisions. Any insurance that preserves your ability to save is vital.
Some might characterize it as the amateur’s way, but diligent saving, efficient cash flow management and comprehensive insurance coverage can deliver winning results. If even the pros have to acknowledge their amateur status, avoiding losses might be your best way to play to win.