August 4, 2022

JF2893: Two Sides of the Coin — Saving & Investing | Passive Investor Tips ft. Travis Watts


Passive Investor Tips is a weekly series hosted by full-time passive investor and Best Ever Show host, Travis Watts. In each bite-sized episode, Travis breaks down passive investor topics, simplifying the philosophy and mindset while providing tactical, valuable information on how to be a passive investor.

In this episode, Travis explains that there are two sides to the coin when it comes to money: saving and investing. He illustrates the importance of both sides and the downside of focusing only on saving while neglecting to invest. 

 

Side 1: Saving & Personal Finance

Growing up, Travis had frugal parents who taught him how to save and manage his personal finances well. He learned how to avoid accumulating debt and spending money on unnecessary purchases. 

He uses an example to illustrate the power of saving: Say at age 25, you make $10,000 per month. $2500 goes to taxes, $1500 goes to rent or mortgage, and $2,000 goes to other living expenses, leaving you with $3,000 left over each month to save. By age 65, you will have saved $1.4M. 

 

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Side 2: Investing

While the example above seems like a good plan, it doesn’t take lifestyle expansion into account — for example, upgrading your car or home, or increases in rent or property taxes. It also fails to take inflation into account. The value of that $1.4M you saved won’t be the same 40 years from now as it is today.

If, however, you choose to invest $3,000 per month for 40 years at an 8% annualized return, you would come out with just over $10M. 

 

Why You Need Both Sides of the Coin

While saving money is undoubtedly important, it won’t get you far unless you invest what you save. If you can’t manage your money, you will inevitably end up in debt. However, if you don’t invest, you will be unable to expand your means and your lifestyle. Learning to do both is key.

 

 

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