Just Keep Buying: Proven ways to save money and build your wealth

When we embark on the journey to build wealth, it’s natural to wonder where to begin. Should you obsess over the perfect investment portfolio, or should you simply save more? This question is answered elegantly by understanding the Save-Invest continuum, a concept that reveals how your financial priorities should evolve as your wealth grows. Early in your financial life, when you have few investable assets, the most impactful way to increase your net worth is by saving more. This is because every dollar you save directly adds to your wealth, while investment returns on a small portfolio are modest in absolute terms.

Imagine a young professional with $1,000 invested who earns 10% annually. That’s only $100 in gains per year. Yet, if they save an additional $100 monthly, they add $1,200 a year—twelve times more than their investment returns. It’s clear where their focus should lie.

Contrast this with someone who has amassed $10 million. A 10% market drop means a $1 million loss, a staggering amount that dwarfs typical annual savings. For this individual, investment decisions and risk management become paramount. Thus, saving is for the poor and investing is for the rich, not in a derogatory sense, but as a reflection of where your financial energy yields the greatest return.

Moreover, your perception of wealth is relative. A young person earning a solid income may feel poor compared to their future self or peers, influencing their financial behavior. This relative perspective shapes how aggressively they save or invest.

Understanding this continuum helps you allocate your efforts wisely. If you’re starting out, focus on increasing your savings rate, developing your career, and growing your income. As your nest egg grows, gradually shift your attention to optimizing your investment strategy, managing risk, and tax efficiency.

This foundational insight sets the stage for the rest of our exploration into saving and investing. With this clarity, you can now move confidently towards learning how much you should save and how to do it effectively.