The two-step plan

Someone shared with me their two-step plan. It makes things really simple (even if it’s not easy).

We assume that the goal is: having the money it takes to do what you want. This can be buying a house or a boat, it could be traveling or it could be the ability to maintain your income after retiring. The way to get to that goals is by following two simple, and related, steps.

Step 1: Save. This involves spending less than you earn. When your expenses are less than your income, you end up with excess cash. Setting it aside is what allows you to save. At the beginning, this is the most important step.

Step 2: Invest. You want your excess cash to produce more excess cash for you. The best way to do this is by buying shares in businesses that are doing the same thing you did in Step 1. Their expenses are less than their revenues and they are producing excess cash. Sometimes they’ll use it to expand their business, sometimes they’ll pay it out as a dividend.

It’s not really any more complicated than that. Save. Invest. Repeat. And you will make progress towards your financial goals. The more money you save and the more profit your businesses create, the faster you reach your targets. There is one side benefit to this way of looking at it. The stock market fluctuates wildly. But when you think of your businesses in terms of how much they are growing their profit since you bought them, the market price becomes less distracting.

It’s also fun to take pride of ownership in your businesses. What businesses do you own?