Building Wealth Requires E-S-G
There's a lot of crap advice out there for how to save money. The problem starts with even the term, "save money". The question really is how to build wealth, whether that's to retire comfortably years from now, or afford a big-ticket item like a nice house, or simply achieve a higher standard of living. Saving is part of that but on it's own it's not enough. Building wealth requires a three-prong approach, E-S-G.
E is for Earning. Before you can even save money, you've got to earn more than enough to get by. So much financial advice skips over this step, going straight to savings (step two). How often have you read advice like, "Save a little, even if it's just $10 a week" aimed at people earning subsistence wages? It's a platitude and it's crap because it's actually false on nearly every level. People will never get ahead in life by saving $10/week. Most poor people know this intrinsically, which is why they scoff at the advice then ignore it. The real challenge for a person in that situation is, "How do I earn more money?" The answer is to invest in yourself. Go to college, go to trade school, work an apprenticeship, earn a certificate through evening classes, etc. There are lots of ways to qualify for jobs that pay better than entry-level fast food and retail. And if you're already in a skilled job, great, but consider how you can earn more. Look for certifications, career paths, a new job, etc. Heck, just ask for a raise at the appropriate time. So many people leave money on the table because they're afraid to speak up when they're being underpaid.
S is for Saving. Once you've got significant earnings you've got to save some of it. This is where all the common advice about savings and budgeting comes into play. Set aside money every month. Learn about and take advantage of automatic savings programs such as 401(k)s. Evaluate your lifestyle expenses and think hard about where you can economize without feeling like you're depriving yourself.
G is for Growth. Once you've got some money saved you've got to do more than stuff it in the proverbial mattress. This again is an area where most common advice comes up short. To achieve greater wealth you've got to put your savings to work, where it can grow. A high interest savings account is a good start, but understand that it won't even keep up with the rate of inflation. Inflation erodes the buying power of your savings over time. To outrun inflation you have to take risk. That means invest some of your money in stocks and bonds. Yes, that takes learning. That's the third thing you need to master in this E-S-G approach.
E is for Earning. Before you can even save money, you've got to earn more than enough to get by. So much financial advice skips over this step, going straight to savings (step two). How often have you read advice like, "Save a little, even if it's just $10 a week" aimed at people earning subsistence wages? It's a platitude and it's crap because it's actually false on nearly every level. People will never get ahead in life by saving $10/week. Most poor people know this intrinsically, which is why they scoff at the advice then ignore it. The real challenge for a person in that situation is, "How do I earn more money?" The answer is to invest in yourself. Go to college, go to trade school, work an apprenticeship, earn a certificate through evening classes, etc. There are lots of ways to qualify for jobs that pay better than entry-level fast food and retail. And if you're already in a skilled job, great, but consider how you can earn more. Look for certifications, career paths, a new job, etc. Heck, just ask for a raise at the appropriate time. So many people leave money on the table because they're afraid to speak up when they're being underpaid.
S is for Saving. Once you've got significant earnings you've got to save some of it. This is where all the common advice about savings and budgeting comes into play. Set aside money every month. Learn about and take advantage of automatic savings programs such as 401(k)s. Evaluate your lifestyle expenses and think hard about where you can economize without feeling like you're depriving yourself.
G is for Growth. Once you've got some money saved you've got to do more than stuff it in the proverbial mattress. This again is an area where most common advice comes up short. To achieve greater wealth you've got to put your savings to work, where it can grow. A high interest savings account is a good start, but understand that it won't even keep up with the rate of inflation. Inflation erodes the buying power of your savings over time. To outrun inflation you have to take risk. That means invest some of your money in stocks and bonds. Yes, that takes learning. That's the third thing you need to master in this E-S-G approach.