The Social Cost of Investing: Why It Takes More than Just Money to Invest

Social Cost of InvestingI don’t have excess funds to put into an investment.

I will invest when my salary increases.

I’ll start saving when my liabilities are fully paid.

Are you familiar with these sentences? Chances are, you’re one of these are amongst the many excuses used when offered an investment product. It is common knowledge to all that investing for the future is an important planning taken into action, to cover predictable and unpredictable financial transactions in our life. The common reasons why people never took interest in investing are:

  • Their expenses are almost equal to their profit – these are the people who maximize their expenses by the amount of profit they earned.
  • Lack of knowledge in investment products – what you don’t know scares you, most especially if you’re putting your hard earned money in an investment product that you don’t understand.
  • Depends on their family – these people rely on their immediate family for incidental expenses they aren’t prepared for.
  • The non-believers – primarily, they just don’t believe that investment products will yield to its offered income.

A Skit on the Social Cost of Investing

Take for example, two bank employees who worked for the same company. Annie and Lisa, both single, entered the bank after graduation. Though they became good friends, they adapted to different lifestyles. Due to the nature of their work, they were exposed to different bank and financial investment products — Annie started saving. Annie allotted $100 dollars every month, that is $1,200 dollars a year. She deposited this in her bank account. She increases the amount of her deposit as her salary rate increases plus 10% of her bonuses. By the end of the third year she already has $70,000 in her bank account. Annie diversified her savings by investing in high-yielding deposit products like time-deposit account and had also taken risk in equity investments. By the end of the fifth year she already has $140,000 which she allocates for emergency cases like hospitalization, automotive and realty purchase and most especially for her retirement.

Lisa, on the other hand, is a different story. Since she holds a front liner job, she set herself to be in the latest trend whether in fashion, gadgets and social activities. Since keeping up with social trends take up a higher cost, her expenses and credit card liabilities consume all of her salary leaving her with no savings. Apparently when she got sick, part of the hospital bill that was not covered by her insurance was paid in debt, thus increasing her financial burden.

Lesson Learned the Hard Way

It was hard for Lisa to control her spending spree just to maintain her social status. This is the social cost of investing, the value of social expenses to be given up to put into an investment. Social cost or social expenses are our “wants”’ and not our “needs”. It can be a new gadget bought at the latest trend, an expensive lunch/dinner out, or even out of town or country trips taken to update social status in Facebook, Twitter or Instagram.

The social cost of investing is indeed a tremendous burden, especially if it is the life that you have been living in. Many people say that you can’t bring money to your grave, so spend it while you can. This belief is a parasite that eats your manner of thinking through things, as well as emptying your wallet in the process.

That How-To be Sixpence Richer: Cut Down Expenses

If you are faced with the dilemma of giving up social cost, you need to keep in mind that savings come first before allotting expenses. Simply:

Profit – Savings = Expenses

It is the most effective way of managing your money. How much do you want to earn in five years? Then divide it in the months to allocate your monthly savings. After negating your savings to your profit, we can then allocate for our expenses. This formula helps you rethink the spending you make to keep within the allotted budget.

One cliché way of doing it is to ask yourself, “do I need it or do I want it?” Assessing the reason for your purchases is a clear way of identifying what you need to spend and what not to. Some investors budget their money via the envelope method. Similarly, others use jars, piggy banks, cans, and even plastic bottles so they can keep their extra change. It’s not how many receptacles you have nor how much you put into; you have to discipline yourself in order to change your lavish lifestyle into a frugal one. Frugal living may seem to be a bit harsh in the start, but you’ll soon reap benefits of this way of thinking.

The benefit of investing early is that you have the advantage of a longer term and higher rate of return. Investment products like equity investments always start at par, meaning you can maximize your liquid resources before additional cost and charges. Also, other financial product offers a minimum investment amortization when done at an early age due to longer term.

Ask yourself these questions: At what age and with what lifestyle do you want to retire? No one wants to work forever; at some point in your life you would want to enjoy living, free from financial stress. Will your savings be sufficient enough to support your retirement? Can it cover inevitable yet predictable expenses like sickness or even judicial expenses? If not, why not start early? Why not start now? Secure yourself by investing now!