It’s age-old financial wisdom, passed down through the generations from parents to their children: save your money, and don’t gamble or waste it. This principle seems simple enough, but as we grow into adulthood and face life’s problems, temptations, and expenses, the simple becomes complex and saving turns out to be a major challenge.
True savings involves a process of storing money now so that you can have a more secure and comfortable future. The future will involve a number of unknowns, which will sometimes manifest themselves as emergencies, as well as the likely scenario that you will someday want or need to retire or at least cut back on your income-producing work.
And so, savings is not money that we use for today’s enjoyment: we defer pleasure now so that we can be more secure later on, when we have a greater need for those funds. It’s an underappreciated concept in today’s instant-gratification, live-for-today culture: choosing not to buy toys and gadgets now, so that we can live off the interest of our savings when we’re older.
A crucial component of that equation is putting your savings into assets that bear some sort of interest, yield, or profits: we must grow our savings in order to combat the savings-deteriorating effect of inflation. Simply holding cash isn’t an option because that cash’s value will inevitably decline substantially over the years.
In this case, it’s a full and mutually satisfactory resolution to the U.S.-China trade talks that’s been priced into the stock market. Sure, the gold market is hopeful of a trade resolution, as this could boost the yuan, which could prompt Chinese investors to purchase more gold.
In contrast to savings, speculation is a form of gambling because you’re risking your future in exchange for today’s momentary enjoyment. Gambling at a casino and sports betting are obvious forms of speculation, but heavily investing in very risky stocks could also be considered speculation.
Furthermore, while most people think it’s a good way to save, keeping nothing but cash that doesn’t accrue any interest is actually a very common form of speculation. Inflation ensures that if you’re not growing your money then you’re losing money, so don’t fall into that trap.
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Let’s make an important distinction here: while I did warn you about over-allocating into very risky stocks, keeping your savings in high-quality blue-chip companies is not speculating. In fact, this strategy can be one of the most effective ways to secure your financial future.
When you invest in great companies, you’re allowing your savings to grow along with that company as well as the economy as a whole. Besides picking out the best yield-bearing stocks, the key here is to avoid giving in to the temptation to dip into your investment capital. Think of it this way: spending the principal is akin to killing the cow, while living off the interest is drinking the milk.
Overspending is an all-too-common bad habit that we must break if we’re going to become savers instead of speculators. In addition to deferring the immediate pleasure of spending money we shouldn’t, it’s important to save some of our monthly income and store it in yield-producing assets. And, when we leave the principal alone and reinvest the interest, we can enrich ourselves over time through the power of compounding.
My personal favorite savings strategy along with real estate and lending, is to invest in stock shares of premier blue-chip companies that offer attractive dividend yields. Research has shown that dividend paying stocks tend to outperform non-dividend-paying stocks over time, and furthermore, companies that consistently increase their dividend payments tend to do even better:
The idea is to seek out solid dividend performers with strong brand names and consistent profits with as little debt as possible. I’ll get you started on your research with three companies that you’ve probably heard of.
Kimberly-Clark Corporation (KMB): Founded in 1872 and worth $18 billion today, Kimberly-Clark is a leader in household products, with well-known brands like Kleenex, Scott, Huggies, Depends, Kotex, and Cottonelle in their lineup. And with a healthy annual dividend yield of 3.5%, Kimberly-Clark is a relatively safe bet for savers.
Anheuser-Busch InBev SA/NV (BUD): Belgian beer maker Anheuser-Busch InBev SA/NV is famous for their Budweiser, Corona, and Beck’s brands. Currently boasting an annual dividend yield of 4.41%, Anheuser-Busch InBev SA/NV offers a great rate for savers even if you’re living a non-alcoholic lifestyle.
Aflac Incorporated (AFL): A leader in the insurance business since 1955, Aflac provides short-term disability, accident, illness, hospital stay, dental, vision, and life insurance to more than 50 million people worldwide. And speaking of insurance, Aflac can help insure your financial future with a solid 2.21% annual dividend yield.
With interest-bearing assets like these and a plan that emphasizes savings over speculation, you’ll be well on your way to building a future on a firm foundation of sound, sensible, and secure principles you can use for a lifetime.
Stacking the odds in your favor is the way the millionaires operate. The actions of millionaires aren’t only practiced once that title is achieved, it’s a mindset of financial prudence that anyone can implement today!
Chief Editor, CrushTheStreet.com
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