I'm not trying to sell you a get-rich-quick scheme, and unlike those infomercials that dominate the airwaves after midnight, I won't promise you that getting your net worth where you want it to be will be easy. But what I will do is show you a different way of thinking about money -- one that could transform your investing life forever.
The true cost of spending
The personal finance website Mint.com ran an amusing infographic recently. It took a number of popular products from the past and asked a simple hypothetical question: What would have happened if instead of buying those products, you'd spent that money to buy shares of the companies that made them?
As you'd expect, the results differed greatly. Spending $20,000 on a Taurus in 1990 would have cost you more than $100,000 had you instead took that cash and invested it in Ford stock. On the other hand, if you'd invested the $150 you'd have spent on CDs at Circuit City in that retailer's stock, then you'd be sitting on a big goose egg right now, thanks to its having declared bankruptcy.
Basically, the strategy of investing in what you spend money on takes the philosophy of legendary investor Peter Lynch a step further. Rather than simply buying what you know, diverting some of your spending toward stocks of companies that make the products you love serves two purposes: It boosts your overall saving, and it helps you select investments that both matter to you and presumably do business in a positive way.
What you learn
Saving and investing more doesn't just set the gears in motion toward making you richer. In the process, you can also learn some valuable investing lessons. Here are just a few of them:
1. Great products don't always make great stocks.
Just because a company makes a product you really like doesn't necessarily mean that it's going to turn into a great investment for you. Since you have to take other factors into account in investing, such as valuation and growth potential, focusing solely on your current satisfaction with a company's products can get you into trouble.
That's exactly the trap that many investors fell into 10 years ago. Microsoft
2. Investing pays off again and again.
Most of the time, when you buy stuff, you gradually lose interest in it. Either it wears out, goes out of style, or gets replaced by some brighter, shinier new replacement. Try to resell that stuff, and you'll usually be lucky to get a fraction of what you paid for it.
Investments, though, often pay you to hang onto them. Once you drink a Coke, it's gone forever, but Coca-Cola
3. Bust a bad habit and get rich.
In some cases, getting on the saving bandwagon can also become a motivating force to improve some other aspect of your life. For instance, I knew someone who was trying to quit smoking and came up with a unique method: every month, she'd take the $100 or so that she would have spent on cigarettes and put it into Altria Group
Start getting rich today
So as the holiday shopping season starts up, take a moment before you break the bank to consider whether spending a bunch of money on stuff is really the best use for your cash. What you might conclude is that a few shares of stock could go a lot further toward making you truly happy in the long run.
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Fool contributor Dan Caplinger loves a great infomercial when he can't sleep. He doesn't own shares of the companies mentioned in this article. Coca-Cola and Microsoft are Motley Fool Inside Value recommendations. Ford Motor is a Motley Fool Stock Advisor choice. Coca-Cola is a Motley Fool Income Investor selection. The Fool has a bull call spread position on Cisco Systems. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Altria Group, Coca-Cola, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy will stay up all night with you.
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