Smart Investing: Spending Money to Make Money

Most people have heard the adage that says you have to spend money to make money, and largely, this saying is believed to apply to the business world. However, this saying can have a true impact on your personal life and investments as well. With a closer look at how spending money can actually help you to improve your financial standing, you may be able to make wise decisions about your finances.

Spending Money to Save Money
Before you can have money to invest, you have to free up money in your budget that can be used for investments. For some people, cutting back on spending may be an effective way to save money. However, there are often some purchases that you can make that may also help you to save money. For example, trading in an expensive car for a more affordable car, buying a house in a more affordable area and even investing in energy-saving appliances can help you to save money that ultimately can be used for investments.

Spending Money on Investments
After you have freed up additional money in your budget that can be used for investments, you must then decide on the investments that you want to make. There are common options, such as CDs, bonds and stocks. There are also other investments that may be more unusual. For example, real estate investment is often viewed as one of the more lucrative types of investments to make. While there is more risk associated with a real estate investment, it has the unique benefits of being a leveraged asset with tax deductions, equity appreciation and rental income. There are few other investments that provide you with all of these benefits. However, you would have to spend money investing in real estate in order to take advantage of this wealth-building opportunity.

Investing in Assets
One of the key things that many people get confused about is that difference between an asset and a liability. Many people spend their money purchasing liabilities, and liabilities ultimately will cost you money rather than make you money. For example, most cars will cost you money in the form of a monthly payment, lost value, insurance, gas, repairs and more. Real estate, on the other hand, has payments that are applied toward equity accumulation, tax deductions, general appreciation over the long-term and more. There are some maintenance costs associated with home ownership, but the benefits typically far outweigh the costs.

 

When you make your decision about how to spend and allocate your money, consider taking steps to decrease frivolous spending and to avoid purchasing liabilities. Focus on saving money and purchasing assets. When you follow these tips, you will find that your personal net worth will increase more quickly.