Earning, Saving & Investment: 3 Steps To Financial Success

Kul Thapa

Earning, saving and investment are three commonly used terms that frequently come in cyclic order. Those people who follow the general norms and values of this cycle, can upgrade their life style and live a rich and prosperous life. On the other hand, people that can’t handle this cycle properly will fall into the vicious circle of poverty.

Here, we will discuss about these three simple words of finance-earning, saving and investment. This article emphasizes the importance of this cycle and how to follow or apply in our life.

Earning/Income

Simply, earning means generating income or money from different economic activities. Earning can be done by providing services, selling skill and labor (being employee), selling products or services (business). It may depend on the goodwill as well.

Earning is required to fulfill the basic needs and to maintain day-to-day expenditure. Earning (Income) may or may not be regular. However, the expenditure is regular and increases through out life. Without adequate income, there is no path to financial prosperity.

Tips for Earning:

  • Recognize own skill and capabilities.
  • Always work in the interested field and enjoy the work.
  • Be laborious and honest.
  • Always grab the opportunities.
  • Don’t waste time.

Saving

Saving is crucial part between earning and investment. Earning becomes meaningless without saving. Investment becomes impossible without saving. If somebody earns much higher than others but saves less, his/her financial condition will be worse off than his peers over time.

Simply, saving is the difference between income and expenditure. Thus, saving can increased by either increasing the earning or decreasing the expenditure.

Tips for Saving:

  • Make the family budget.
  • Keep track of your spending habits.
  • Cut unnecessary expenses or spending.
  • Make saving automatic by putting aside fixed amount of money for regular saving.
  • Pay Off Debt.

Investment

Investment is the engine that helps to maximize the wealth.  It depends on the rate of return and level of risk tolerance. Risk and return always persist in investment. Risk should be under tolerance level and return should be profitable and comparatively high yielding. Very limited resources, inadequate knowledge/skill, faulty decision making without detailed preplan and over expectation are some hindrance in successful investment.

Investment should be done in those areas that matches with our nature and knowledge. Time span for generating income from investment should also be taken into consideration. Mixing the short term and long term return from investment may assure the fulfillment of personal requirement.

Tips for Investment:

  • Assess own capability and suitability
  • Collect information, preplan and take thoughtful decision
  • Estimate the rate of return and level of risk.
  • Diversify portfolio if possible.
  • Invest slowly and steadily. Don’t pour all resources at once.

Conclusion

These three terms have symbiotic relationship and always assist each other. Absence of one among the three will disrupt the cycle and minimize the chance of wealth creation and maximization. Saving is impossible without earning and investment is impossible without saving. Likewise, investment is powerhouse for income generation. Hence, it is essential that one carefully performs all these three activities in order to achieve financial freedom.


Recommended:

Investments And Savings: The Basics Of Personal Finance

Value Investing & The Investment Discipline

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