The money you earn is split between living money and working money. Living money is what you need to stay alive – it pays all your expenses. Working money is much more fun. It’s money that earns money while you watch YouTube videos. Your money only becomes working money once it finds a job with the money-making twins we introduced you to last week.
The twins: a reminder
At the moment you work to get living money and working money. Eventually, you want to have enough working money to turn it back into living money so you can stop working. The twins will help you do that.
Money you want to protect goes to Savings. Because Savings is all about playing it safe, your working money is really lazy here. Over time, this money can buy less and less because of inflation*. Savings doesn’t need time, it only needs money.
The money you give to Investing is less safe, but it works much harder. You don’t give Investing money you might need at any moment, because Investing might be using that money to hustle. There’s also a chance that Investing tried to use some of your money to hustle and lost it. It happens. Investing needs time and money.
You want to keep some of your money safe in case you need it, but you want to put some of your money to work so you can stop working. How do you decide how much money to give each twin?
One Magical Question
Where your money should go depends on one, easy question:
When do you need your money back?
Remember, the money you give to each twin is still your money. You can get it back whenever you want. You can ask Investing for your money back immediately, but you have to be open to the possibility that Investing is going to give you less money than you gave it because the rest of your money is tied up in some business venture.
If you need your money back in a few months, you want to give your money to Savings. Savings is the best way to have enough money for a holiday or to buy a new TV or to pay for emergencies. You know when you start how much money you’ll need and when, so you ask Savings to hold on to it until you have enough.
A few years
When you know you’ll need the money in the next two to five years, your money has more time to work, but not enough to really get good at it. While most of your working money still has to go to Savings, you can afford to look for Savings jobs that will work a little harder. Next week we’ll discuss your options. This money could be for bigger expenses like a house or a car or some living money when you retire.
As long as you want
It’s only once you know you won’t need the money in the next five years that you start going to Investing. You ask investing to use your money for more than one venture, because you know if you put all your working money in just one business, the business might not work and you’ll lose all of it. You give your money to Investing because you want more money than you started with, but Investing needs time to get your money to work. Investing is for working money that eventually becomes living money.
Next week we’re going to look at different types of savings to help you find the best place to keep your money safe.
*You might not know it yet, but you hate inflation.
Being outstanding with your money doesn’t have to be hard. This series of articles will give you all the tools you need to get your house in order to start investing. Written by Just One Lap and sponsored by OUTvest, this series is the ultimate guide to outstanding money.