Introduction – Investing in yourself
This article is part of my ‘how to build a budget’ series. Investing in yourself is a budget category I suggest as part of any budget strategy. For a more detailed look at the process of building a budget and all the categories I suggest, see the full article here: How to Build a Budget.
Table of Contents
What does it mean to invest in yourself?
Most people start the process of building a budget by looking at their income, adding up expenses, and then saving whatever they can with what is left over. Investing in yourself is a shift in thinking when building a budget. Instead of the normal budget strategy noted above, choose instead to invest in ways to secure your own financial freedom first, then live within your means with what is left.
This is different from long-term savings goals, which often center around saving for large home projects, vacations, or at best planning for retirement at the age of about 65. These should be planned for as part of any budget, but they don’t change your financial situation today. If these are the only savings goals in your budget, you are constantly working just to pay for your next project, only to retire late in life. Ok if this is your plan, but is that what you want?
I am looking for something I can work towards that can help me achieve financial freedom as soon as possible. I don’t find fulfilment in the current 40-hour per week job model, so the idea of needing to continue working my day job for the next 20-30 years to build up a retirement nest-egg is not appealing.
Even if I was happy to go that route, there is always a risk that someday I could lose my job or become unable to work due to circumstances that could be completely outside of my control. The 40-hour per work job model just doesn’t provide the security and benefits it once did. To me, it’s too risky to rely on this alone.
If this resonates with you, continue reading. Below are three ideas to consider that may help you to achieve financial freedom for yourself.
Investing in yourself like a boss
According to the Small Business Administration, wealthier families tend to have a stake in a business. This means that, on average, wages are less important to wealthier individuals as more of their income comes from a self-managed business, independent consulting, or income from assets.
Also, consider that the average business will likely fail multiple times before hitting it big with any one idea. If you think those successful people you hear about on the news just got lucky, consider this article that lists out a lot of significant failures by some of the richest people in the world: How the 25 Richest Americans Failed Miserably | Inc.com. No one is perfect and trying something new requires openness to failure as a possibility.
The point of bringing this up is that most people are afraid of failing, so they never try. But if the people on that list were afraid of failure, they likely wouldn’t have had the chance to become as wealthy as they are today. I’m not saying that this level of success is going to happen for all of us, but why not try?
Often people have dreams of starting a business or going into a different line of work, but limited funding prevents the idea from getting off the ground. If this is you, then money set aside for investing in yourself could be used to pay for start-up costs, joining clubs or groups that will help grow your network, or taking courses that could help equip you for starting this new venture. Having this as a separate budget category allows you to save money for these ideas without needing to compromise other long-term savings goals.
Finding success will require practice
When in doubt, remember those failures listed above. No one is an expert at something the first time they try; everything takes practice and that includes starting a business. Business ideas will also require monetary investment to be pursued seriously – very few ideas require zero seed money to get started (and if they did everyone would be doing it!).
The consequences of the business failing should also be considered. Make sure to protect your other assets in case the business fails – this means using cash to get started and avoiding using credit or leverage under most circumstances (like taking out mortgages to seed a business).
The first few ideas will likely fail, and that may mean losing some amount of money as you needed to invest something to try out the idea. But what you learn along the way will build invaluable experience you can put towards starting the next business. Remember, you only need to succeed once!
If you want some ideas on business ideas to get started, I highly recommend two books on the topic: Rich Dad Poor Dad by Robert T. Kiyosaki, and The 4-Hour Workweek by Timothy Ferris. Both books show different perspectives on making it on your own in the working world and prove how a day job working for someone else isn’t your only option.
Investing in yourself in a career
As someone who has done both, I know there are pros and cons to choosing either working in the corporate world or running your own business. A day job can offer benefits and consistency in income that would take years for a small business to replicate. At the same time, however, this approach has its own risks that I outlined in the section above.
Additionally, increasing your earning power at a day job can be incredibly difficult. Every job is different, but my corporate jobs, as an example, only offered 5%+ annual raises to the top performing employees each year. Everyone else needed to be happy with increases of 1-3% if they received a raise at all.
Inflation generally runs between 1-3% annually. This means most years I was not actually getting wealthier, even after getting a raise. The only consistent way to get the larger increases in pay needed to outpace inflation and grow my earning power was to get a promotion or a new job at another company. Neither of these options were available to me every year.
Consider your options
I don’t like to put all my eggs into the career basket given these limitations. But this is ultimately a very personal choice. Do you know of a path towards a promotion or job change that will increase your earning power significantly? If so, and you don’t want to pursue running your own business right now, then investigate certifications, education, and other learning tools you can use to make those moves.
Also consider that building your own business doesn’t always mean leaving the day job behind. Starting a business and investing in your career in parallel can also be an effective short-term strategy. Most small businesses can be started using your evenings and weekends, and if it grows, investments can be made to shift the business operating model towards automation and delegation.
Whatever you choose, it is important to decide for yourself where you want to make the investment, setting goals that will build in that area, then consistently and intentionally moving yourself towards those goals.
Investing in yourself in the stock market
Keep in mind that investing in yourself could include a focus on traditional investments as well. If you don’t have a great business idea today and can’t think of any courses or certifications that will benefit your day job, then traditional investing (like stocks or mutual funds) is a perfectly good strategy as well.
One of the benefits of investing is that this can be an effective way to get a return on your money today, and if you think of a great business idea later that option is always there. Just make sure the investment is not in an account with withdrawal restrictions.
Remember that the Savings category of a standard home budget will also include investments in 401k’s and other retirement focused accounts. If stock market investing is the route you are pursuing for investing in yourself long-term, then I would recommend maximizing deposits into your tax-advantaged retirement accounts each year first (like employer 401k accounts, personal IRAs and ROTH IRAs).
If you are interested in picking individual stocks for your investment portfolio, I highly suggest you read these two books first:
- The Intelligent Investor by Benjamin Graham
- Rule #1 by Phil Town
And if you prefer videos, these YouTube channels are great resources as well:
There are many other resources out there for investing, so do your research before jumping in. The resources above will provide the baseline education needed to build an investment strategy based on data about the underlying companies, and help you avoid the emotional and speculative approaches to stock investing that can get you into trouble.
Conclusion
There are a lot of options out there for how to reach that end goal of ‘retirement’, and not all of them require you to work for 30-40-years to be reached. Here are some of the examples of ways to invest in yourself and potentially retire sooner:
- Start your own business, which doesn’t mean quitting your day job, and doesn’t require you to invent the next iPhone either!
- Make investments that will make you better at your day job, to increase your earning power
- Come up with an investment strategy, which coupled with retirement savings, will help you build an income-returning portfolio
I hope this article inspires you to be an active participant in your financial journey and find your way towards financial freedom. For more information on how to build a budget strategy and your first budget, see my other article: How to build a budget.
Whatever route you choose, lean in, and start today!
