It’s happened to all of us. One late night you are sitting there thinking, tomorrow I will get my finances in order. I will pay off all my debt and finally start investing.
You feel excited! You will try and save 20% of your income and invest it in the best portfolio out there. You imagine 40%+ returns on your investments next month. You imagine financial freedom. This time, you will finally sit down and do it because this time is different.
Then tomorrow comes.
You feel tired after a long day at work, and you don’t have it in you to go over all the investment vehicles out there. You tell yourself your money is okay in the savings account, making 0.5%. At least it is safe.
Or an unexpected repair on your car comes up, and you need the money.
Or your family member asks to borrow some money and so on.
Another few months go by, and you are no further along in your financial goals than you were before. Only now you feel worse because you have actually attempted but failed.
Six months go by, and on a Thursday night, after a few drinks, this itch returns, and the cycle repeats itself.
Getting off the vicious cycle
These roller coaster-like attempts don’t just happen with investing but any other self-improvement goal. So if we can learn how to navigate these ups and downs, we can improve many aspects of our lives.
Focusing on big goals scares us into inaction. The binary view of life is emotionally taxing. All or nothing thinking, although it can feel motivating, doesn’t produce results. What’s the point of saving and investing a few thousand dollars if that will not make you the wealthiest person in the world. You don’t want to dominate your life; you want to dominate the world. The Problem is, we got to start somewhere.
Many wealthy people get asked, “How did you make your first million”? Most answers involve some heroic, bold action. But the reality is, they slowly worked their way to a million.
We are searching for a magic solution. We don’t just want to start investing but become Warren Buffet overnight. Focusing on unrealistic goals leads us to search for unrealistic magic bullet solutions. If we have $100,000 of debt to pay off and want to do it tomorrow, we keep searching for absurd ways to make that money quickly. Obviously, none of them work. But what’s worse, this endless search wastes time from actually sitting down and doing the work. It creates a feeling of doing something but doesn’t produce any meaningful results.
The Kaizen Approach: Invest a little every day
“Kaizen (改善, かいぜん), the Sino-Japanese word for “improvement”, is a concept referring to business activities that continuously improve all functions and involve all employees from the CEO to the assembly line workers. Kaizen also applies to processes, such as purchasing and logistics, that cross organizational boundaries into the supply chain. It has been applied in healthcare, psychotherapy, life coaching, government, and banking.”
Although businesses developed this approach to improve their operations, it applies very well to our day-to-day lives.
Each day, focus on getting just 1% better!
Okay, but how will this help start investing?
This is where compound interest, monthly contributions, and dividend reinvestment come in.
Let’s assume you picked a portfolio from our investment guide that suits you, or you want to keep it super simple and buy the S&P500 through SPY.
You have $1000 saved up, and you invest it and forget it, leaving any dividends in cash. Or you invest the original $1000, reinvest all the dividends, and contribute $100 every month. Let’s compare the difference, assuming you started five years ago.
So in Dec, 31st 2014, you put in $1000. In April 2021, you would have $2030. You doubled your money, not bad.
But let’s imagine you saved approximately $3.30 every day and invested it at the end of every month, and you also reinvested any dividends. Without investing and just saving, you would have $1000 + 5 * 12 * 100 = $7000 saved up in five years. Not bad, but with investing, this is what you would have.
You would have $16,228 at the end of just five years. That is incredible. Now image if you did this over 20-30 year period.
Don’t overwhelm yourself into inaction. Start investing slow.
The point is. Without doing anything crazy and simply saving $3 a day and buying something generic like SPY, we all can be on the way to a better financial future.
This is just an example, however, and with a little bit of research. By taking a deeper look into our free portfolio ideas or investment guide and doing your due diligence, you can become a better investor.