Investing Basics - Saving Money

One thing that many people forget about investing is that you must have the extra money to invest. I've heard of people going into credit card debt to invest. This is just plain foolish.

If you are not spending less than you earn, then you should not invest. This sounds like a really simple idea, but many people ignore it. There is an old British saying that goes, "Earn 20 pence and spend 21 pence , result misery. Earn 20 pence and spend 19 pence , result happiness." I could not agree more with the sentiment.

I made this mistake in my last few years of college and my first few years of working. I figured that as soon as I got my high-paying job, I would pay off my debt in a flash. But, that is not what happened. I ended up carrying that debt for over a year. Despite having a relatively high-paying job for my age, having no kids, and not being married, I held the same amount of credit card debt after my first year of working. I just could not control my spending. And as a result, I was not investing.

Carrying debt is the opposite of investing. Instead of you loaning your money out to someone else with the expectation that you will get more back in the future, people are loading you money with the expectation that you will give them back more in the future -- almost always at a higher interest rate than what you would earn investing. Now, not all debt is bad. Student loans, a mortgage, and other low interest debt that adds significant value or earnings to your life can actually be good. Mostly, I'm talking about credit card debt as being bad and, generally, pointing towards you spending more than you are earning.

After getting out of credit card debt, I promised myself that would never ever get in a hole through credit card again. By consistently spending less than I earned, I was able to invest a significant amount of money. Before I was buying a ton of stuff I really didn't need or even use sometimes. And by cutting out or significantly reducing costs it was actually quite easy to spend less than I earned. I was not being cheap, but I was being frugal.

As a bonus, now credit card companies pay me to use their card! I get about $600 a year back in rewards instead of paying thousands of dollars in interest.

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